The Employees Provident Fund (EPF) accommodation policy is explained in detail.
Employees Provident Fund, we examine how an EPFO member should use his provident fund funds to buy a home and whether tapping into your PF account savings is a smart decision.
Will you use the provident fund (PF) to pay for a down payment on a new mortgage or to repay a current home loan? Yeah, the conclusion is yes. The more pertinent concern, though, is whether it would be a smart decision to dig into your investments that are intended to serve you after retirement. We’re looking for answers.
The easy availability of mortgage financing allows a potential homeowner to purchase the desired property well before his ability to arrange any of the capital himself. Even then, property transactions necessitate substantial outlay on the buyer’s side, as banks require home loan buyers to pay at least 20% of the transaction value upfront. Furthermore, almost 10% of the land expense would be spent on legal formalities, such as property registration following stamp duty charge, and so on. Withdrawals from the Employees’ Provident Fund (EPF) portfolio are therefore an easy option for those in a rush to buy a home.
The PF is a savings-cumulative retirement program available to workers of qualifying organizations. Under the current rules, EPFO subscribers and their employers are required to pay 12 percent of the employee’s minimum wage to the PF account, also known as EPF. So, over time, one can save a large amount in their PF account, which can then be partly deducted for a variety of purposes under the current rules.
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The EPFO housing scheme
To achieve its goal of ‘Housing for All by 2022,’ the central government implemented a number of policies that made home purchasing simpler, especially for middle-class homebuyers. The EPFO Housing Scheme, announced in 2017, was one of these initiatives.
The Employees’ Provident Fund Organisation (EPFO) permitted its members to use 90 percent of their EPF accumulations to make down payments on houses and/or pay the home loan EMIs under the EPFO Housing Scheme. Both EPFO participants, whether they work with the government or the private sector, have access to the PF withdrawal service.
The EPFO, which is managed by the state, declares all contributors with a PF number to be members. It should be noted that PF members will benefit from the EPFO home system as well as the credit-linked subsidy scheme (CLSS) under the government’s Pradhan Mantri Awas Yojana (PMAY).
What will I do for my EPF contributions?
A member’s PF withdrawal may be used to purchase a new house, purchase a plot or piece of land, build a home, renovate a home, or pay the home loan EMIs. The land must be owned by the PF account holder, his partner, or both in any of these situations. If the PF partner owns the property with someone other than their parent, they will not be able to remove funds from their PF account.
Furthermore, funds borrowed from a PF account for a home cannot be used to buy a house on the secondary or resale market.
In the case of home loans, the EPFO has also permitted a non-refundable loan, as well as the use of potential PF payments to offset outstanding home loan EMIs.
EPF withdrawal rules
In addition to the current requirements from 2017, the EPFO inserted a new provision allowing the removal of up to 90% of funds from the PF account for home transactions.
To remove the funds, a PF member must also be a member of a registered housing society with at least 10 members. As a result, only after being a member of the housing society will the PF account holder be able to apply for withdrawal in addition, for members of housing societies to be considered for withdrawal, the combined amount in the PF subscriber’s and his spouse’s accounts must be at least Rs 20,000 on the date of submission.
A PF participant may remove up to 90 percent of his or her PF account balance or the cost of purchasing a home, whichever is less. Furthermore, only members who have served three years as EPFO participants are eligible to withdraw 90 percent of the number. More specifically, a member can only use this withdrawal service once in his lifetime.
Before the amendments in 2017, one had to be a member of the EPFO for at least five years in order to withdraw funds for a home purchase. They could also withdraw either a sum equal to 36 months’ minimum pay, or the balance of employee and employer share with interest or total expense, whichever was less, from their PF account to buy a house. The sum used to vary based on the reason for which the PF was withheld, as seen in the chart below.
If the object of the PF money withdrawal was to repay a home loan, the member was only permitted to do so if he had served 10 years of EPFO membership and his own share of donations, with interest, was Rs 1,000 or more. The time period for withdrawing PF funds for the purchasing of a house/plot, home building, or restoration was five years.
How do I get money from my EPF to buy a house?
If a subscriber joins a registered housing society, he or she, along with their partners, may qualify for PF withdrawal for home buying by filing an application in person or online. To apply online, your Universal Account Number (UAN) must be unlocked and connected to your Aadhaar, PAN, and bank data.
To apply for a home loan through the housing society online, members must submit an application to the EPF commissioner using the format stated in Annexure I on the EPFO website. In this form, you will be asked to include the past three months’ balance and payment information, as well as the account details of the housing society to which the payment is to be made. It is important to note that the charge would be made directly to the housing society rather than to the account. In your application, you can choose whether you want a lump sum or payments in installments. This form will assist you in obtaining a certificate from the EPFO in Annexure-II, which will reveal the remaining balance as well as the last three months’ deposit in your PF account.
If you are requesting a PF withdrawal to fund home loan EMIs, you must also complete Annexure III in addition to Annexure I. Annexure III in the prescribed format for the member to authorize the EPFO to deduct loan payments from his account balance.
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Tax on PF withdrawal
If you withdraw funds for reasons other than financial stress induced by COVID-19 and your gross PF balance is more than Rs 30,000 at the time of withdrawal, you will face tax consequences. This also applies if the member has not served five years with the EPFO and the withdrawal sum exceeds Rs 50,000.
Here’s an illustration: If you have Rs 30,000 or more in your PF account, the TDS consequences apply. However, if you subtract, say, Rs 49,000 from a PF account with a balance of, say, Rs 75,000, this will not be the case. Even if the balance number is subject to TDS on your record, the withdrawal cap protects you from it.
Withdrawals of more than Rs 50,000 are subject to a 10% tax in the form of TDS (tax deducted at source) when you have PAN (permanent account number) information under Section 192A. TDS of 34%, on the other hand, will be fined if the member is unable to include his PAN card information. If the PF account holder has worked with an organization for more than five years, no PAN information is needed. The same is applicable if the PF holders’ jobs were dismissed due to illness or company discontinuation.
If your net income is less than the taxable cap under Indian income tax rules, you can escape TDS by submitting Forms 15G and 15H. It should be noted that all exemptions claimed under Section 80C of the IT Act against your PF contributions will be revoked as well.
During COVID-19, EPFO funds were withdrawn.
Among the various steps proposed to combat the negative impact of the Coronavirus pandemic, the government announced in 2020 that EPFO subscribers would be able to withdraw up to 75 percent of their PF balance in the event of financial hardship caused by the pandemic. The withdrawal was given as a non-refundable advance.
If an EPFO account holder loses their work, they will deduct up to 75% of their EPF balance after one month of unemployment, or three months of their basic salary plus dearness allowance, whichever is less. If the unemployment lasts for another month, the remaining 25% PF removal is permitted. In addition, the EPFO made those withdrawals tax-free in the hands of members.
Should you use your PF funds to purchase a home?
Financial planners almost unanimously agree that after-retirement savings can not be used for any other reason, particularly if you do not have a contingency plan to cover your post-retirement needs.
If that makes perfect sense, your immediate needs will need you to dig into your savings. The recent Coronavirus pandemic, for example, has highlighted the importance of homeownership, inspiring more potential homeowners to act now for greater protection and protection. In such a precarious situation, it may not be a bad idea to use PF withdrawals to secure a home.
However, since medical emergencies will necessitate large expenditures on hospitalization and other healthcare services, it might not be a wise idea to invest all of your money in an illiquid commodity such as real estate unless you have a backup plan.
More specifically, if and when the condition allows, one must save an amount comparable to the amount borrowed from the PF to replenish one’s savings.
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