Understanding Voluntary PF Contribution: Limits, Charges, and How to Get Started

I am an HR Executive, and our employees are interested in contributing towards Voluntary PF Contribution. Can anyone clarify the following points:

1. What is the maximum limit of PF contribution towards Voluntary PF Contribution? Is it 88% of Basic? If employees want to contribute, can they contribute less than 88%?

2. How will the administration charges be calculated?

3. What is the process to start contributing to the voluntary contribution?

4. Currently, employees contribute 12%. Can they contribute the additional 88% so that the total contribution amounts to 100% of their basic salary?

Please provide the information.

Thanks & Regards,
Pourna.

I didn't seem to understand your logic of 88%. Nonetheless, the EPF scheme is as below:

Employer's Contribution

The employer has to contribute 12% of basic + DA or 780 (12% of the currently prescribed 6500), whichever is less, as the contribution. Out of the 12% of the employer's contribution, 8.33% goes to the Pension Fund (EPS) and the remaining 3.67% goes to the PF account (EPF).

Above this 12% contribution towards the PF and Pension Fund, an employer is also expected to bear the following expenses:

- 0.1% admin charges for PF and Pension accounts
- 0.05% towards the employee insurance scheme
- 0.01% admin charges for the insurance account.

Please note that if the company provides an at-par or better insurance scheme, they are exempted from contributing (b) and (c).

Employee's Contribution

An employee is also expected to contribute 12% of basic + DA or 780 (12% of the currently prescribed 6500), whichever is less, as a contribution. The employee can voluntarily increase their contribution to the PF account. The maximum employee contribution allowed as per the act is 20% of basic + DA (or 20% of the currently prescribed 6500 limit), whichever is lower. The whole contribution made by the employee goes to the PF account only.

Also note that when an employee wishes to voluntarily increase the contribution to PF, there ought to be a joint declaration provided by the firm and the said employee declaring the percentage of contribution that the employee is willing to contribute.

I hope I have answered your query.

If your PF contribution is over and above ₹6,500, that's ₹780. The remaining amount shall be treated as VPF.

For example, if the wages are ₹10,000 and your contribution is 12% on ₹6,500 (i.e., ₹780, which is treated as compulsory PF contribution), and you are contributing 12% on ₹10,000 (i.e., ₹1,200), then the difference between ₹1,200 and ₹780, which is ₹420, is treated as VPF.

As part of VPF, you can contribute up to 20% of the wages. All the admin charges of Account 2, 21, and 22 are calculated on a maximum of ₹6,500 only.

Hope it is clear now.

Are you sure there is a limit of 20% as the maximum for voluntary PF? I know many large companies (mostly MNCs) that compute PF on the full salary for managers. That would be far above the 6,500 limit.

While studying labor laws last year, it was communicated in my textbook that an employee's contribution to the PF fund is compulsory at 12% and can be voluntarily increased to 20%.

Upon searching after your query, I found this:

attribution https://www.citehr.com/110130-what-v...#ixzz2PemE8bYA

On the contrary, I also found:

Can I contribute over and above the mandatory 12%, as a voluntary provident fund?

A. Yes, but subject to a total contribution of not more than 100% of the basic salary. However, the employer will not contribute towards such voluntary contributions made by the employee. Furthermore, the said voluntary contribution will be treated as normal contributions and cannot be withdrawn as and when the employee wishes to. The voluntary contribution will be at a fixed percentage of basic and will remain the same throughout the year (Mar-Feb). You can give the mandate for the deduction of voluntary PF at the start of the financial year and can cancel it anytime during the year.

Source: http://sunshineconsultants.co.in/yah....311162455.pdf

However, I think seniors should help us solve this confusion. I shall search for the text at home. If I find one, I shall attach the scanned copy of the text from it.

This is in response to the above comment by Cite HR members. As far as my knowledge is concerned, Voluntary Provident Fund (VPF): VPF is a safe option wherein you can contribute more than the PF ceiling of 12% that has been mandated by the government. This additional amount enjoys all the benefits of PF except that the employer is not liable to contribute any extra amount apart from 12%. An added advantage is that the interest rate is equal to the interest rate of PF, and the withdrawal is tax-free. Please note that the maximum contribution towards VPF is 100% of your Basic. The highest rate of interest makes it a very attractive saving scheme. Because of these advantages, many employees choose not to close their PF account even after getting employment elsewhere other than India. Employees also get a major tax break on their entire contribution to the fund (tax rebate under section 88).

Note: There is no limit on the percentage that one can choose to opt. Admin/EDLI Charges are applicable only on the total wages, and thus it will not make the employer pay extra charges.

One more thing, you can invest well over the Section 80C ceiling, and you won't have to take the trouble to deposit the amount, too: your employer will do it. You may have claimed your insurance premium, children's education, housing loan principal, and so on, thus easily exhausting your limit.

Effectively, most of the Section 80C limit would have been used up in claiming expenses you incurred rather than in investing. Even if you did save by investing in bank or company deposits, your interest on it will be taxed.

Procedure of VPF - Investing in VPF is a simple process and just requires you to inform your employer to deduct a certain proportion of your pay (subject to the limit mentioned above) additionally, every month.

Please correct me if this is not correct.

Regards,

Ankita

Executive HR

“A candle loses nothing by lighting another candle.” In other words, be willing to help others and share your knowledge and insights with others who may benefit.

Please note that the maximum contribution towards VPF is 100% of your Basic. The total contribution towards PF/VPF is 100% of basic (88% employee + 12% employer) or 100% of basic of employee only + 12% employer, resulting in a 112% contribution towards PF.

Regards,
MN KHAN

[Source: https://www.citehr.com/456450-volunt...#ixzz2PfZLZ3Qt]

Specific and to-the-point answers to your questions are as follows:

Voluntary PF Contribution Limit

There is no maximum limit for VPF laid down in the Act or any circular or notification to my knowledge. If you deduct 88%, what will remain in the hands of the employee? Also, the provisions of the Payment of Wages Act on deductions from wages should be kept in mind.

Calculation of Administration Charges

Administrative charges are calculated on the PF salary, i.e., on which PF is deducted.

Process to Start Contributing Voluntary Contribution

The employee has to give an undertaking as prescribed in this regard.

Total Contribution to Basic Salary

Answered above at Sr. 1.

Regards.

Understanding VPF Contribution Limits

Section 6 of the Employees' Provident Fund & Miscellaneous Provisions Act, 1952 does not specify any upper limit for the Voluntary Provident Fund (VPF) contribution. Since there is no upper limit, an employee can choose to deposit their entire take-home salary after statutory and other deductions. Many employees nearing retirement have been depositing almost their entire take-home salary, attracted by the returns it is earning.

Thank you.

I agree with your first point regarding the PF Act not specifying any upper limit for VPF. However, I respectfully disagree with your second point that suggests an employee can opt to deposit their entire take-home pay.

Section 7(3) of the POW Act 1936

I would like to bring your attention to section 7(3) of the POW Act 1936, which is quoted below:

"Notwithstanding anything contained in this Act, the total amount of deductions that may be made under subsection (2) in any wage period from the wage of any employed person shall not exceed:
(i) in cases where such deductions are wholly or partly made for payment to a co-op. society, 75% of such wage;
(ii) in any other case, 50% of such wage."

In a previous post of mine, I elaborated on this particular clause.

Hey Pourna, employer share will remain the same, and administration charges will be borne by employers.

Hi,

How do we track VPF contributions? Is there a way to check the amount credited to VPF every month? It's not available in the EPF passbook.