Voluntary Provident Fund (VPF) Limit For Tax Benefits Could Be Hiked

The government is considering increasing the limit for tax-free interest on contributions to the Voluntary Provident Fund (VPF) under the Employees Provident Fund Organisation (EPFO).

Currently, the limit is set at Rs 2.5 lakh where any interest earned beyond this threshold is taxable. According to the Economic Times, the Ministry of Labour and Employment is expected to discuss this proposal with the Ministry of Finance during the financial year 2026 (FY26) Budget deliberations.

What is VPF?

The VPF or voluntary provident fund is a non-compulsory investment made by salaried employees over and above the Employees Provident Fund (EPF) which is deducted monthly from their income. The major advantage of this retirement fund is that it is a government-backed savings scheme that gives contributors low risks and high returns.

Like employees, employers are under no obligation to contribute to their employees’ VPF portfolio. Also, once the contribution is chosen in VPF, the employees cannot terminate or discontinue it before the base tenure of 5 years is completed

Advantages of VPF: It typically falls under the exempt-exempt-exempt (EEE) tax category meaning that contributions, interest, and the maturity amount under VPF are all tax-free, making it an attractive savings option for employees.

Historically, EPFO has generated competitive interest rates, often exceeding 8 per cent since FY-1978 making this scheme particularly appealing for salaried individuals. In recent years, the interest rates have been set at 8.10 per cent for FY22, 8.15 per cent for FY23, and 8.25 per cent for FY24.

Limitation of VPF: In Budget 2021, the government had placed limitations on the EEE exemption category. Starting from FY 2021-22, tax exemption on accrued interest has been limited to the threshold limit of Rs 250,000 contribution. Any interest on excess contribution into the fund is currently taxable beyond this limit, and TDS (tax deducted at source) is deducted on such amount.

Who Would Benefit From An Increase In VPF Limit?

A possible rise in the VPF limit for tax-free interest would allow middle-income earners to secure better returns while also maintaining a fair balance in the usage of this scheme. EPFO currently has over 70 million contributors and a substantial corpus of over Rs 20 lakh crore.

This scheme plays a key role in the financial planning of salaried individuals who have this as something closest to building a retirement corpus dedicatedly with monthly contributions. A

potential revision in the tax-free interest limit will further make it more appealing for individuals as a retirement savings tool.