VPF limit for tax-free interest may be Increased: Relief for Middle Income Salaried Class
The increase in the VPF tax-free limit would provide added incentives for salaried individuals to increase their voluntary contributions to Provident Fund, ultimately boosting retirement savings while offering tax-efficient growth
VPF – Voluntary Provident Fund – Tax free interest – Middle Income Class – VPF Tax Free Interest Limit Increase – Taxscan
VPF – Voluntary Provident Fund – Tax free interest – Middle Income Class – VPF Tax Free Interest Limit Increase – Taxscan
The government is considering increasing the tax-free interest limit on Voluntary Provident Fund ( VPF ) contributions, which is currently capped at ₹2.5 lakh for contributions made by employees in a financial year. This limit was set in the Union Budget 2021-22, primarily to restrict tax benefits for high-income earners who made substantial contributions to their VPF accounts.
The government could raise the ceiling on contributions with taxfree interest to the voluntary provident fund ( VPF ) under the Employees’ Provident Fund Organisation ( EPFO ) from the current Rs 2.5 lakh. Beyond this, interest earned is currently taxable. The ministry of labour and employment is examining the issue and is likely to take it up with the finance ministry during FY26 budget discussions.
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The proposed increase in the tax-free interest limit would provide relief for middle-income and high-income earners who use VPF as a safe, long-term savings instrument and encourage greater retirement savings, especially for employees who prefer low-risk investment options like VPF.
Typically, VPF comes in the exempt-exempt-exempt tax category. This implies that contributions, interest as well as maturity proceeds all are tax-exempt.
Middle-income and high-income earners would likely benefit most, as they tend to contribute higher amounts to VPF. Employees would have a larger portion of their retirement savings growing tax-free, which aligns with long-term financial planning goals. The increase in the VPF tax-free limit would provide added incentives for salaried individuals to increase their voluntary contributions to Provident Fund, ultimately boosting retirement savings while offering tax-efficient growth.
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Increasing the tax-free limit aligns the VPF with inflation trends, allowing employees to grow their savings without tax erosion.Higher tax-free limits would encourage employees to enhance their retirement savings in a risk-free, stable environment, addressing growing concerns about retirement funding adequacy. Raising the limit could simplify tax compliance and reduce administrative burdens associated with calculating tax on interest above ₹2.5 lakh.
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