₹1,150 a year: that is what each ₹1 lakh earns more in VPF than in PPF. Both carry the word "tax-free", but VPF's label stops covering the part of your own yearly EPF plus VPF that passes ₹2.5 lakh, and you pay the tax on it. This vpf vs ppf sum, done in rupees, shows where the extra 1.15 points stay yours and where the taxman takes them back.
Use VPF until your own EPF plus VPF reaches ₹2.5 lakh a year, then switch to PPF.
- Inside that line both are tax-free, so VPF's 8.25% beats PPF's 7.1% outright.
- Above it (₹5 lakh if your employer pays no PF share), interest on the excess is taxed at your slab.
- On the excess, VPF still wins at a slab of 13.4% or lower, so 10% stays and 15% switches.
- PPF takes at most ₹1.5 lakh a year and locks the money for 15 years.
VPF vs PPF: who pays tax on the 8.25%?
Nobody pays tax on VPF interest while your own yearly EPF plus VPF stays at or below ₹2.5 lakh; above it, you pay slab tax every year on the interest those extra rupees earn.
The rule sits in an Income Tax Department tutorial on retirement benefits, as amended by Finance Act 2025. It taxes the "Interest relating to the employee's contribution above Rs. 2.5 lakh" where the employer also pays in, and above ₹5 lakh where none does. Plain reading: only your own money counts. Your employer's share never does. To find your room, multiply the employee PF line on your payslip by 12 and subtract it from ₹2.5 lakh. Confirm the section number at incometax.gov.in, because the Income-tax Act, 2025 has applied since 1 April 2026.
The CBT met on 2 March 2026, and the PIB release says "CBT recommended 8.25 % annual rate of interest to be credited on EPF accumulations". PTI reported on 18 June 2026 that the Finance Ministry had concurred. VPF is paid into the same PF account, so on our reading of EPFO's FAQ it earns that declared rate. PPF pays 7.1% for October to December 2026, PTI reports, unchanged from the previous quarter on 30 September.
The common advice says VPF always beats PPF. We disagree. It is true only on the rupees under your line.
PPF takes ₹500 to ₹1,50,000 a year under Rule 3(1) of the scheme text on NSI's site, and the account matures 15 years after the financial year of your first deposit, extendable in 5-year blocks. That lock buys a rate that stays tax-free under the new regime too (Business Today, May 2024).
Both sums are break-even sums, the kind we ran for prepaying a home loan instead of starting a SIP and for digital gold against a gold ETF. Here the break-even is a slab.
VPF's Rate Edge
1.15 points
Over PPF, before any tax
Tax-Free Ceiling
₹2.5 lakh
Your own EPF plus VPF a year
PPF Lock-In
15 years
Then extend in 5-year blocks
PPF Interest Per Lakh
₹7,100
Tax-free, up to the ₹1.5 lakh cap
The ceiling is a yearly test that counts only your own money. A pay rise lifts your EPF line. Next year's room can be smaller.
Above the line, the extra 1.15 points are taxed at your slab. Past a slab of about 13.4%, they stop beating PPF.
How many rupees does the gap come to?
On ₹1 lakh a year, VPF's edge compounds from a small gap in year one into lakhs by year fifteen while you stay under the line; above it, tax can reverse the sign.
Worked example: a salaried reader with ₹1,25,000 monthly basic, a 30% slab and ₹1 lakh a year to invest for 10 years. Assumptions: deposits at each year's start, rates held at 8.25% and 7.1%, 4% cess on tax, tax paid out of the taxed slice. Your room: 12% of basic is ₹1,80,000 of employee EPF a year, so ₹70,000 fits under the line. On that slice VPF leads PPF by ₹70,113 after 10 years. The other ₹30,000 earns 8.25% less 31.2% tax, a net 5.68%, and trails PPF by ₹34,461. Net result, the post-tax yield gap: ₹35,652 in VPF's favour.
The grid isolates the part that moves: each ₹1 lakh a year above the line. Find your slab row. Read across.
| Your slab | Year 5 | Year 10 | Year 15 |
|---|---|---|---|
| 5% slab | +₹13k | +₹62k | +₹1.7L |
| 10% slab | +₹5.3k | +₹25k | +₹69k |
| 15% slab | -₹2.5k | -₹11k | -₹32k |
| 20% slab | -₹10k | -₹47k | -₹1.3L |
| 30% slab | -₹25k | -₹1.1L | -₹3.1L |
The bold cell is the example's slice at 10 years and 30%; its ₹30,000 is 30% of that cell. Our arithmetic: one slab step, 10% to 15%, flips every sign. That is the 13.4% break-even at work.
Staying inside your room for ten years is worth about a lakh on every ₹1 lakh a year. Our arithmetic: ₹1 lakh deposited at each year's start, VPF at 8.25% against PPF at 7.1%, both tax-free.
Where does the VPF call go wrong?
The call goes wrong in three places: the 8.25% is a 2025-26 rate that resets every year, your employer's share moves your line, and PPF money stays locked for 15 years.
Rate risk comes first. EPF's rate is declared once a year, so 8.25% describes 2025-26 only (as of November 2026). PPF's resets every quarter. Rerun the sum whenever either moves.
The lock matters as much as the rate. VPF sits in your EPF account, so on our reading it follows EPF's withdrawal and transfer rules, while PPF's clock runs from your first deposit. Fifteen years is a long payback horizon, like the break-even on rooftop solar after the PM Surya Ghar subsidy (and salaries and employers both change in that time). Our view: money you may need inside a decade belongs in neither.
- A pay rise lifts 12% of basic, so your room shrinks even if your deposit stays flat.
- Check the credited rate on your passbook against the notified rate, since interest above it is taxable.
Check these about your own situation
- Your employee PF line times 12 already sits within ₹50,000 of the line.
- Your employer pays no PF share, so the line is ₹5 lakh, not ₹2.5 lakh.
- A promotion could lift you from the 10% slab to 15% before your horizon ends.
- You may need this money inside 15 years.
Stay in VPF while your own EPF plus VPF is under ₹2.5 lakh a year (₹5 lakh if your employer pays no share). This week, multiply the employee PF line on your payslip by 12 and write down your room. Switch the next rupee to PPF, up to ₹1.5 lakh, once you pass the line and your slab is 15% or higher: your post-tax yield gap turns negative at about 13.4%. The call is wrong if the EPF rate falls toward 7.1% or you need the cash inside 15 years. Check the declared rate on EPFO's site and the PPF rate on the Department of Economic Affairs small savings page.
How we checked this
We read the PIB release of 2 March 2026, the Income Tax Department tutorial as amended by Finance Act 2025, and NSI's text of the PPF Scheme, 1968, all on 12 November 2026. The 7.1% and the Finance Ministry's concurrence on 8.25% come from PTI reports of 30 September and 18 June 2026. The worked example assumes ₹1,25,000 basic, ₹1 lakh a year, a 30% slab and 10 years. No product was tested hands-on for this article.
Last verified: 12 November 2026. Edited by Ansari, reviewed after publication. Spotted something out of date? Tell us and we will correct it.
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