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Sunday, March 2, 2014

Withdrawal or Advance from Employee Provident Fund (EPF)

Almost all salaried people contribute a certain percentage of their salary towards their Employee Provident Fund (EPF) account every month. While most of us know that EPF is an effective tool that helps generate a corpus for life post retirement, many of us are unaware that you can make a withdrawal from your EPF account for urgent cash requirements....Read on...

Is it recommended to withdraw from EPF?
"Provident" literally means "Timely preparation for future." Therefore, a Provident fund is the fund accumulated for future.
An Employee provident fund (EPF) is basically a plan to provide financial security after retirement. It is, therefore, not advisable to withdraw any amount from one's provident fund account as Provident Funds are primarily meant for retirement planning, and retirement planning is one of the most important goal in any person's life. So, one should avoid doing so unless there is a real emergency. 

In fact, there are various advantages of continuing to invest in a provident fund (PF). Generally, the return on provident fund is higher than inflation, and the investment is from a tax free income.
Thus, withdrawing out of it would have the following consequences:
  • Retirement planning would go haywire
  • Tax-free status would be lost because the withdrawn money cannot be put back.
Therefore, withdrawal from a PF account is generally discouraged, as the purpose of opening it and accumulating money there is mainly for the second innings of your life. Generally, withdrawing PF stands out as a classic case of lack of prioritization and holistic approach in our financial decision making process. By making withdrawals from the PF to fund other goals, we end up pushing our retirement age or making higher contributions towards building retirement fund during the last few years of our employment.

Rules for withdrawal from EPF
However, in case one wants to withdraw money from his/ her PF account, the rules for the same are very stringent.

(A) For : Education or marriage
  • The employee should have completed at least 7 years of employment or service.
  • Withdrawal allowed for self, sibling(s) or children's marriage.
  • Withdrawal permitted for self or children's education only.
  • Proof of the education or wedding required to be submitted, such as a valid copy or a bonafide certificate of the payable fees or the wedding invitation.
  • In case of education, the individual needs to apply in Form 31 through his/her employer. 
  • Only 50% of the total corpus amount till date can be withdrawn.
  • Permitted thrice only during a person's total service tenure.

(B) For : Medical treatment
  • Withdrawal permitted for medical treatment of self, spouse, parents and children.
  • There is no restriction regarding the number of years of service.
  • The proof of hospitalization for a month or more along with an approved leave certificate from the employer for the corresponding period needs to be produced.
  • The member needs to obtain and deposit a certificate from the employer.
  • A certified proof or document of the disease should be submitted in Form 31 while applying for withdrawal. 
  • The maximum withdrawal allowed is 6 times the monthly salary of an individual or the total corpus amount, whichever is lesser

(C) For : Purchase of a plot
  • Should have completed at least 5 years of service.
  • The plot or property should be registered in the person's or his/her spouse's name or should be owned jointly.
  • The plot should not be entangled in any legal issues and the agreement registered under the Indian Registration Act with the Flat Promoter needs to be submitted along with the application form. 
  • The maximum withdrawal allowed is up to 24 times the salary of the individual.
  • It is allowed once during entire service tenure

(D) For : Construction or purchase of a flat, house or plot
  • The employee should have completed at least 5 years of service.
  • The house should be registered in the person's or his/her spouse's name or should be owned jointly.
  • The amount cannot be more than 36 times the monthly salary of the individual.
  • Allowed once during entire service tenure.

(E) For : Repayment of Home Loan
  • Should have completed at least 10 years of employment.
  • The house should be registered in the person's or his/her spouse's name or should be owned jointly.
  • The amount cannot be more than 36 times the monthly salary of the individual.
  • Allowed once during entire service tenure.

(F) For : Alteration or Renovation of house
  • Should have completed at least 5 years of service.
  • The house should be registered in the person's or his/her spouse's name or should be owned jointly.
  • The amount cannot be more than 12 times the individual's monthly salary.
  • Allowed once during entire service tenure.

(G) For : Pre-retirement
  • The individual must be at least 54 years old.
  • The amount cannot be more than 90% of the total corpus amount
  • Once during entire service tenure

What happens if someone is leaving an Organization?
On switching jobs, an employee can apply for transfer of money from the EPF account through a form which is filled by the employee and attested by the designated authority at the employer.
 

Withdrawal of money from the account in between two jobs is illegal and is permissible only under the following two circumstances:
  • When a member is in between two jobs
  • If the member has been unable to find another job for over two months
  • One has given up working or wants to be self-employed

Grievance related to withdrawal from EPF 

There is a mechanism to address grievances of EPF members which comes under the Consumer Protection Act. To report a grievance, a member needs to:
  • Log on to the website www.epfigms.gov.in
  • Click Register Grievance
  • Enter the details and information in the specified field.
 
Cheers

Manoj Arora
Freedom can buy you what money cannot !!

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