VPF Withdrawal Rules

The Voluntary Provident Fund has flexibility when it comes to withdrawal, offering both partial and full withdrawal under specific VPF withdrawal rules. These rules are there to ensure there is a balance between savings and withdrawals. As long-term savings will need to have minimal times of withdrawals to promote financial discipline. This helps to make sure that you can build a substantial retirement corpus at the end of your working age.

By promoting financial discipline, ensuring tax compliance, and preventing misuse, these rules help you achieve the primary objective of saving in the VPF scheme, i.e, to secure financial stability and security during post-retirement years. The VPF money withdrawal rules are given below.

Contributions to VPF accounts are subject to tax deductions on interest that are less than or equal to ₹2.5 lakh annual contribution.

VPF Lock-in Period

The Voluntary Provident Fund has a lock-in period of 5 years, to help you maintain the habit of long-term saving and sustain your retirement funds. However, there are certain features and circumstances that allow for partial withdrawals. Some key aspects of the VPF lock-in period are:

  • Tax Benefits: The 5-year lock-in period acts as a gateway for you to fully benefit from the tax benefits under the EEE (Exempt-Exempt-Exempt) category. You must maintain the VPF account without withdrawals for a minimum of 5 years, otherwise, the withdrawals made will be subject to taxes.
  • Liquidity During Lock-In: Although the lock-in period is mandatory, VPF gives you the flexibility for partial withdrawals in genuine cases of financial need. If there are medical emergencies, marriage, higher education, or home purchase, you will be able to access the funds.
  • Tax Implications on Withdrawals Before 5 Years: If you make a withdrawal before the end of the 5-year period, it will attract tax on the accumulated maturity amount. This reduces the immediate financial benefit that VPF offers.
  • In Case of Death of Account Holder: In the event of the untimely death of the account holder, the nominee will be able to withdraw the accumulated funds, whether the lock-in period has been completed or not. This rule ensures that the employee's family has access to financial support during critical times.

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VPF Partial Withdrawal After 5 Years

Consider partially withdrawing from your VPF account only after completing the 5 years lock in period. This is because you can get tax-free withdrawals. Here are the VPF withdrawal rules for partial withdrawals after 5 years.

  1. Post-Lock-in Benefit: After the 5-year lock-in period is completed, you can withdraw the accumulated amount without having to pay taxes. That is only if other conditions of the Income Tax Act are fulfilled. Tax-free withdrawals apply to both the interest earned and principal amount.
  2. Purpose of Withdrawals: Even after the 5-year period, you can make partial withdrawals if there is a requirement for the following conditions:
    • Medical Emergencies: You can withdraw from your VPF account to cover medical expenses for yourself or for your family members.
    • Marriage and Higher Education: Partial withdrawal will be allowed in case there is a need to finance your marriage or higher education or for your children.
    • Purchase of House or Land: Withdrawing from your account is allowed for purchasing new land, buying a house, or building a house.
    • Education Expenses: You can also use the money from your VPF account to pay for your children’s educational expenses.
  3. Amount and Frequency: While partial withdrawals are allowed, there are limits to the withdrawal amount and frequency of withdrawals. You can consult with your employer or the EPFO to understand the exact rules applicable to your VPF account.

VPF Full Withdrawal After 5 Years

A full tax-free withdrawal of your VPF account is also possible after the 5 year lock-in period. However, there are certain conditions that need to be met, these are:

  • Upon Retirement: Once you reach the retirement age as defined by your employer or the EPFO, you will be able to withdraw the entire VPF maturity amount.
  • Upon Resignation: Full withdrawal can also be done when you resign from your current job.
  • Other Specific Conditions: There are other specific conditions as well such as permanent disability or critical illnesses, after which you can fully withdraw your account, subject to EPFO rules and regulations.

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Features of Voluntary Provident Fund

Voluntary Provident Fund offers you flexibility, security, high returns and more, here are the features of VPF:

  1. Eligibility: Any salaried employee who is already contributing to the Employee Provident Fund (EPF) can contribute to VPF. However, unlike EPF, employers cannot make contributions on behalf of their employees.
  2. Contribution Limit: You can contribute up to 100% of your basic salary and dearness allowance to VPF with no upper limit to the amount of contribution. Moreover, the contribution is eligible for tax benefits under Section 80C of the Income Tax Act.
  3. Interest Rate: VPF is currently offering an interest rate of 8.25% and is determined by the Government of India and is subject to change annually.
  4. Tax Benefits: The contributions you make to VPF are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. However, only up to a limit of ₹1.5 lakh per financial year. Moreover, the interest earned and the maturity amount are exempt from tax, as it falls under the Exempt-Exempt-Exempt (EEE) category.
  5. Safety and Security: The scheme is backed by the government, thereby making it a secure investment option that is low-risk.
  6. Lock-in Period: The contributions made to VPF will be under a lock-in period of 5 years. After which, partial withdrawals will be allowed under specific VPF withdrawal rules like home purchase, marriage, medical treatment, and education. The approval of which will be subject to certain conditions and eligibility criteria.
  7. Interest Compounding: With the VPF, you can enjoy compound interest which is annually, helping your corpus grow substantially over time.
  8. Portability: The VPF account can be easily portable across different jobs. Where, if you change jobs, the account can be transferred to the new employer’s EPF account.
  9. Voluntary Nature: The contributions made to VPF are entirely voluntary and can be adjusted or discontinued based on your financial capacity and retirement planning needs.
  10. Ease of Contribution: The contributions are deducted directly from the salary, making sure that the contributions are continued and ensuring a disciplined approach to savings.

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Frequently Asked Questions

No, you will need genuine reasons to be able to withdraw from your VPF account. Moreover, there are limitations to the frequency of withdrawals in a year.

New VPF rules include tax on interest exceeding ₹2.5 lakh annual contribution and stricter withdrawal conditions before 5 years.

The disadvantages of VPF include limited liquidity, mandatory long-term commitment and potential tax on early withdrawals.

To get money from VPF, you can apply for partial or full withdrawal through your employer or EPFO if you meet the specific conditions set.

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