As per the new tax regime in India, the Voluntary Provident Fund (VPF) contributions are not taxable. However, there is a catch. The tax exemption is valid only on VPF contributions up to ₹2.5 lakh in a financial year. Any contributions above this limit will be taxable from the financial year 2021-22 onwards according to the Finance Bill, 2021.
You can continue to invest more than ₹2.5 lakh in a year in your VPF account, but the interest earned on the amount exceeding ₹2.5 lakh will be added to your income and taxed according to the income tax slab you fall under. This change was implemented to prevent high net worth individuals from gaining excessive tax benefits.
Please note that the ₹2.5 lakh limit includes both the employee's contribution towards Employees' Provident Fund (EPF) and VPF. If your total contribution to EPF and VPF exceeds ₹2.5 lakh in a year, the interest earned on the amount exceeding ₹2.5 lakh will be taxable.
You can refer to the
https://www.incometaxindia.gov.in/Pages/default.aspx for more information on the new tax regime and how it impacts your VPF contributions.