In keeping with the spirit of the “investment declaration” season that is April, let’s go over a very specific investment avenue, the Provident Fund. You must be well aware that PF is quite a popular avenue for long-term investing. What’s more interesting is that there are broadly three types.

Employers provide EPF, aka the Employer’s Provident Fund. (Refer to Know Your PF Account over a Bowl of Noodles)
Another similar kind of avenue is the PPF, aka the Public Provident Fund. A PPF account may be opened by you whether you are employed or not.
The third type of PF, the VPF or Voluntary Provident Fund. This is available to those who are employed and want to voluntarily contribute more to their existing EPF.

The first one is pretty straightforward. And given that salaried employees have an option to invest additionally in both VPF and PPF, let’s discuss the pros and cons of these other two options.

Voluntary Provident Fund is available only to salaried employees who already have an EPF. They get an option to contribute to the existing fund over and above the 12%. The maximum they can contribute is 100% of basic salary. This earns the same interest as EPF, which is around 8.5% as of now. Also, since VPF is linked to Aadhar, it can be easily transferred from one employer to another in case of job change.

How to get started?
You need to approach your HR/Finance department to assist you with setting up VPF. This will be linked to your existing EPF account.

Public Provident Fund is for everybody, whether employed or not. Here, one can invest a maximum of ₹1.5 lacs per year, and the interest as on date is 7.1%. The lock-in period for PPF is 15 years. This can further be renewed for a period of 5 years, every 5 years.

How to get started?
You can open an account either online or offline with a participating bank or with post office

Here is a comparison of VPF and PPF to help you make an informed decision.

While VPF returns are more attractive, PPF allows you the flexibility to invest any time during the year.

As we near the end of April, your employer would have asked you to submit your investment declarations for income tax. If this process seems confusing to you, allow me to make it easier.

What is an investment declaration?

At the beginning of every financial year, your employer has to calculate your total tax for the year and deduct it on a monthly basis (Tax deducted at source or TDS). Now, to arrive at this total tax liability, they would need to know the deductions you’re planning to utilize. These can be investments under section 80C, health insurance under section 80D, house rent allowance, and so on.  This is what brings us to this activity of declaring your investments.

Then, towards the end of the year, the employer would want to know whether you actually acted as per the declaration. This is when they ask you for proofs, somewhere between December to February. In case there is a difference between the declaration made in April, and the proofs submitted by February, it is settled in the last two months’ salary.

With that, I hope that your declarations for FY 2021-22 are done and you now also have a better understanding of how you invest additional sums into both the VPF as well as PPF. As always, feel free to reach out in case you need any help.

P.S: As the virus continues to grip the country, we wanted to recommend a book that would help with “facing adversity, building resilience and finding joy”. Sheryl Sandberg’s Option B is a must-read, especially in these tough times.

Rushina Thacker

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