All about Employees’ Provident Fund (EPF) housing scheme

[ecis2016.org] We look at the ways in which an EPFO member can use his provident fund savings for property purchase and whether dipping into your PF account savings is a wise move

Can you tap into your provident fund (PF), to arrange the down-payment for your new home or repay your existing home loan? The answer is, yes. However, the more pertinent question is, whether it would be a wise move to dip into your savings that are meant to serve you after retirement? We try to find some answers.

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[ecis2016.org] Rules for PF withdrawal for house purchase

Easy availability of housing finance makes it convenient for a prospective buyer to buy a property that one desires, much before his ability to arrange all the money himself. Even then, property purchases involve significant spending on the buyer’s part, as banks ask home loan borrowers to pay at least 20% of the transaction value upfront. Moreover, one also has to spend nearly 10% of the property cost in completing legal formalities, such as property registration after stamp duty payment, etc. So, for someone in a hurry to have a house of his own, withdrawals from the Employees’ Provident Fund (EPF) account is an easy choice.

The PF is a savings-cum-retirement scheme, for employees of eligible organisations. Under the existing rules, it is mandatory for EPFO subscribers and their employers to contribute 12% of the basic salary of the employee towards the PF account, which is also referred to as EPF. So over the years, one is able to save a significant amount in their PF account, which can be partially withdrawn for various purposes under the existing rules.

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EPFO housing scheme

To achieve its objective of ‘Housing for All by2022’, the central government launched various measures that made home purchases easier, especially for middle-class home buyers. Among these measures, was the EPFO Housing Scheme, announced in 2017.

Under the EPFO Housing Scheme, the Employees’ Provident Fund Organisation (EPFO) allowed its members to use 90% of their EPF accumulations, to make down payments to buy houses and/or pay home loan EMIs. The PF withdrawal facility is available for all EPFO members irrespective of whether they work for the government or the private sector..

The government-run EPFO considers all contributing people with a PF number as members. Note that PF members can avail of the benefits of the EPFO home scheme, along with the benefits under the credit-linked subsidy scheme (CLSS) under the government’s Pradhan Mantri Awas Yojana (PMAY).

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What can I do with my EPF money?

The money withdrawn from the PF by a member, can be used for buying a new property, buying a plot or piece of land, constructing a property, home renovation or paying home loan EMIs. In all these cases, the property must be owned by the PF account holder or his spouse or both. In case the property is jointly owned by the PF member along with anyone other than their spouse, they will not be eligible to withdraw from their PF account.

Also, the money withdrawn from the PF account for a home, cannot be used to purchase a property from the resale or secondary market.

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For home loans, the EPFO has also allowed a non-refundable loan, as well as a facility to use your future PF contributions, to repay your pending home loan EMIs.

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EPF withdrawal rules

Apart from the existing conditions from 2017, the EPFO also inserted a new rule, to allow withdrawal of up to 90% of the funds from the PF account for home purchases.

For a PF member to withdraw the money, he must also be a member of a registered housing society, consisting of at least 10 members. Hence, the PF account holder will be able to apply for withdrawal, only after becoming a member of the housing society. Also, the total balance in the account of the PF subscriber and his spouse must be at least Rs 20,000 on the date of filling the application, for the members of housing societies to be eligible for withdrawal.

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The maximum amount that can be withdrawn by a PF member is up to 90% of the PF account balance or the cost of property purchase, whichever is lesser. Also, only those members, who have completed three years as an EPFO member, are allowed to withdraw 90% of the amount. More importantly, this withdrawal facility is available to a member, only once in his lifetime.

Before changes were made in 2017, one had to be a member of the EPFO for at least five years, to withdraw money for housing purchase. They could also withdraw only an amount equal to 36 months’ basic salary, or the total of employee and employer share with interest or total cost, whichever was lesser, from their PF account to purchase homes. The amount, as explained in the chart below, used to be different, depending on the purpose for which the PF was being withdrawn.

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In case the purpose of the PF money withdrawal was for home loan repayment, the member was allowed the facility only if he had completed 10 years’ of EPFO membership and if his own share of contributions, with interest, was Rs 1,000 or more. In case the purpose of the PF money withdrawal was for the purchase of a home/plot, home construction or renovation, the time limit was five years.

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How to withdraw money from EPF for house?

Once a subscriber becomes a member of a registered housing society, they, along with their spouses, can apply for PF withdrawal for home purchase, by either submitting an application physically or online. To submit an application online, your Universal Account Number (UAN) must be activated and should be linked with your Aadhaar, PAN and bank details.

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To apply for a home loan through the housing society online, the member has to apply to the EPF commissioner in the format specified in Annexure I on the EPFO website. In this form, you will be asked to provide the balance and payment details of the last three months, along with the account details of the housing society to which the payment has to be made. Note that the payment will not come in your account but directly to the housing society. In your application, you can opt for a lump-sum payout or for payments in instalments. This form will help you get a certificate from the EPFO in Annexure-II, which will show the outstanding balance and last three month’s deposit in your PF account.

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In case you are applying for PF withdrawal to pay home loan EMIs, you will also have to fill Annexure III along with Annexure I. Annexure III is the prescribed format for the member to give an authorisation to the EPFO, for loan payment from his account balance.

Tax on PF withdrawal

If you are withdrawing funds for reasons other than financial stress caused by COVID-19 and your total PF balance is more than Rs 30,000 at the time of withdrawal, there are tax implications on the PF withdrawal. This also holds true if the member has not completed five years with the EPFO and if the withdrawal amount is over Rs 50,000.

Here is an example: In case there is Rs 30,000 lying in your PF account, the TDS implications come into force. However, it would not not be so, if you are withdrawing, say, Rs 49,000 from your PF account that has a balance of, say, Rs 75,000. Even though the balance amount attracts TDS implication on your account, the withdrawal limit has you covered against it.

Under Section 192A, withdrawals of over Rs 50,000 would attract at 10% tax in the form of TDS (tax deducted at source) when you are furnishing PAN (permanent account number) details. On the other hand, TDS of 34% will be charged, if the member is not able to provide his PAN card details. Submission of PAN details is not necessary if the PF account holder has served more than five years in a company. The same holds true, if the PF holders have been terminated from their job due to ill-health or discontinuation of business.

If your total income is below the taxable limit under the income tax laws in India, you can submit Form 15G and 15H, to avoid TDS. Note here that if you have claimed any deductions under Section 80C of the IT Act against your PF contributions, your claim will also be reversed.

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EPF withdrawal COVID 19 rules

EPF allows non-refundable withdrawal during second wave of COVID-19

In order to support its subscriber base during the second wave of the Coronavirus pandemic, the EPFO, on May 31, 2021, announced the facility of a second non-refundable COVID advance. EPF subscribers can now make non-refundable withdrawal from their PF account to the extent of the basic salary and dearness allowances for three months or up to 75% of the balance in their account, whichever is less.

In the wake of the virus outbreak in early 2020 in India and the economic stress it caused, the organisation, in March 2020, came up with a special withdrawal provision for EPF members under the Pradhan Mantri Garib Kalyan Yojana (PMGKY). The pension fund body, with 50 million subscribers, has settled more than 7.63 million COVID-19 advance claims, disbursing Rs 18,698.15 crores in all, since the facility was made available in 2020.

Note that members, who opted for PF withdrawal for the first COVID-19 advance, can also opt for a second advance.

“During the second wave of COVID-19 pandemic, the EPFO endeavours to lend a helping hand to its members, by meeting their financial needs. Members, who have already availed of the first COVID-19 advance, can now opt for a second advance also. The provision and process for withdrawal of second COVID-19 advance is same as in the case of first advance,” the Labour Ministry said, in a statement, adding that it would settle such cases within three days of receiving an application for the same, in case of auto-mode settlement for members whose KYC is complete.

“Considering the urgent need of members for financial support in these trying times, it has been decided to accord top priority to COVID-19 claims,” the ministry said.

EPFO money withdrawal during COVID-19 first wave

Among the various measures announced to counter the ill effects of the Coronavirus pandemic, the government, in 2020, allowed EPFO subscribers to withdraw up to 75% of their PF balance, in case of any financial stress due to the pandemic. The withdrawal was offered in the form of a non-refundable advance.

In case of job loss, an EPFO account holder can withdraw up to 75% of the EPF balance after one month of unemployment, or three months of their basic salary plus dearness allowance, whichever is lower. The remaining 25% PF withdrawal is allowed if the unemployment continues for one more month. The EPFO also made such withdrawals tax-free in the hands of members.

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Should you withdraw PF money to buy a home?

Financial planners are almost unanimous in their opinion that one should not use the savings that are meant to be used after retirement for any other purpose, especially in the absence of a backup plan to meet your post-retirement needs.

While that makes perfect sense, your near-term necessities might sometimes force you to dip into your savings. The ongoing Coronavirus pandemic has, for example, brought to the forefront the significance of home ownership, inspiring many prospective buyers to take the plunge now, for better safety and security. In a highly volatile situation like this, it might not be a bad idea to go for PF withdrawals to secure a home.

However, since medical emergencies may force one into spending huge amounts on hospitalisation and other healthcare facilities, it might not be a good idea to spend all your savings in an illiquid asset like real estate, unless you have a back-up plan.

More importantly, as and when the situation permits, one must save up an amount similar to the money withdrawn from the PF, to replenish one’s savings.

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