Employees' Provident Fund Organization, or EPFO, the nodal agency that monitors employees' provident fund (EPF) contributions, allows the subscriber to make a partial withdrawal or 'advance' withdrawal, from the PF corpus under certain circumstances. One of them being- the prepayment of home loan. Withdrawal from the EPF account is also permissible in order to purchase/construct a house.
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Repayment of home loan- What the rule says?
In accordance with Section 68-BB of the EPF scheme, withdrawal is permissible in case of repayment of any outstanding home loan of the employee investor or the spouse.
This means if an employee has availed a loan for the down payment of any house which is outstanding, he/she can utilize the EPF balance for repayment of such a loan.
How much percent of the corpus can be withdrawn?
For the purpose of repaying the outstanding home loan, the PF member is allowed to withdraw up to 90 percent of the corpus if the house is registered in his or her name or held jointly.
What are the other conditions for the withdrawal?
To withdraw the amount for home loan purpose, at least 3 years of complete service is required, according to EPFO.
Moreover, the home loans in this case must have been availed from registered financial institutions with the state government, public financial institutions, non-banking housing finance companies, state housing boards and municipal corporations.
How many times can an employee go for PF Withdrawal for home loan payment?
The facility of PF withdrawal for this purpose can be availed only once in a lifetime.
What are the tax implications?
If the PF withdrawal is made before the completion of the five years from opening the PF account, it is taxable under the law. This withdrawal will be taxable under the head of the ‘Income from other sources’ head.
TDS (Tax Deducted at Source) is deducted at 10 percent on EPF balance if it is withdrawn before five years of service. If PAN is not provided, TDS can be deducted at highest slab rate of 30 percent if the employment service is less than five years.
The EPF amount is also taxable if there is a break in the contribution to the account for five continuous years. In that case, the entire EPF amount is considered as taxable income for that financial year.
What is the process to put online claim?
In order to apply for EPF withdrawal online, the subscriber must have an active Universal Account Number (UAN) and the mobile number used for activating the UAN number should be in working condition.
The UAN should be Know Your Customer (KYC)-verified by furnishing information such as Aadhaar, Permanent Account Number (PAN) and bank details.
The subscribers can put a claim for 'advance' withdrawal via EPFO's unified portal—unifiedportal-mem.epfindia.gov.in. The claim is then forwarded to the employer for approval. Once approved, the amount is credited to the subscriber's account.
Should you withdraw PF?
After the RBI repo rate hikes, the home loan interest rates have gone up in the recent past. Given that, some borrowers may be considering using their EPF corpus to prepay their loan either partially or fully.
Financial experts, however, say that it is not a good idea to withdraw the PF amount until retirement. EPF works on compounding and the corpus, if allowed to build up, can reap huge benefits.
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