EPF is the acronym for Employees Provident Fund. It is one of the most important investments made by a salaried individual during his or her term of employment. EPF is managed by the Employees Provident Fund Organisation, which is a statutory body formed under Employees Provident Fund and Miscellaneous Provision Act of 1952. The EPF account not only comprises of the contribution made by the employee but as a statutory rule, every organisation which employees more than 20 employees under its payroll are required to register with EPFO. This means both the employee as well as the employer makes a contribution to the EPF account. The EPF not only serves the purpose of a retirement scheme but also works as a saving scheme that can be used at the emergency.
As per the law of the land both the employee as well as the employer are required to contribute 12 % of their basic salary to EPF.
- 1 EPF Withdrawal Rules
- 2 New Policy under discussion
- 3 Tax Imposition on Employees Provident Fund
- 4 Points To Remember
EPF Withdrawal Rules
There may arise various foreseen and unforeseen situations when a person might want to withdraw a part of his or her EPF amount. For instance for medical treatment, repair or alteration of existing house, purchase or construction of a new house or flat, home loan repayment, education of self or children, for marriage etc. It must, however, be noted that for specific withdrawals, a person can withdraw only after 5 years from the date of opening an EPF account.
While claiming an EPF withdrawal, the following guidelines should be kept in mind.
Withdrawal for Medical Treatment
As per EPFO rules a person can withdraw anytime during his tenure from his or her EPF account for the purpose of medical treatment of self, spouse or children. The clause does not require an employee to complete a term of employment. Withdrawal for this purpose can be made under the following circumstances:
- When a person has been hospitalised for than a month.
- When a person has to undergo a major surgery.
- If a person is suffering from an illness like T. B, leprosy, paralysis, cancer, heart or mental illness and has been granted leave by the employer for the treatment of the same.
One of the benefit under this clause is that a person can withdraw anytime for as many times he or she wants. The maximum amount that can be withdrawn is 6 months of basic salary.
While making a withdrawal claim for this purpose the following documents are required
- A certificate from the employer declaring that the employee is not a beneficiary under Employees State Insurance Scheme.
- A certificate from the doctor stating the illness and the number of days required for hospitalisation.
Withdrawal for marriage and education
A person can withdraw for a maximum of three times during his or her tenure for the purpose of marriage or education of self or children. An employee can withdraw up to 50 % of his or her share from the corpus fund. Such withdrawals can be claimed only after completing 7 years of employment from the date of opening an EPF account. Further, necessary documents like education certificates, date, time and venue of marriage must also be provided in Form 31. It must also be noted that education loan is provided only for post matriculation education.
Withdrawal for repayment of home loan
A person can also apply for EPF withdrawal for repayment of home loans. Such claims can be made after completing 10 years of service. It must, however, be noted that such claims can be made only once, which means that a person can either claim for the purchase of a house or a flat or for repayment of a home loan but not both. The maximum amount that a can withdrew is 36 times of monthly wages. The payment is done directly to the lender bank and the employee is required to provide necessary documents supporting the claim like house agreement, house loan sanction etc.
Withdrawal for the purchase of land or construction of a house
After completing five years of service an employee can partially withdraw a part of the EPF amount for the purchase of land or construction of a house. The maximum amount that can be withdrawn for the purchase of land is 24 times of monthly wages and 36 times of monthly wages is permissible for construction of a house. Further, the house or the land should be undisputed and should be in the name of the employee or in his or her spouse’s name or must be jointly held.
Withdrawal for miscellaneous reasons
The EPFO also allows employees to withdraw for other miscellaneous reasons like voluntary retirement due to illness, for going abroad to work or to settle down etc.
New Policy under discussion
In a recent report in Economic Times it has been stated that a new policy is underway that will allow partial payment of PF claims in Mutual Fund type units. According to the new policy which is under discussion, 85 % of the total amount of the pensioner will be paid with the interest rate decided by the EPFO and the interest rate on the rest of the 15 % of the total amount will be decided on the basis Mutual Fund model. The interest rate on this particular 15 % will be paid by multiplying the units accumulated with the value of equity on the day of exit. Subscribers may differ encashment by 1 or 2 years if he or she feels that it will yield higher returns in the future. The tenure for such extension will be finalized by CBT.
Tax Imposition on Employees Provident Fund
While claiming an EPF withdrawal, the following points must be kept in mind regarding tax imposition
- If the withdrawal is made before completing five years of service.
- However, no tax will be deducted if the amount withdrawn is less than rupees 30000, even before completing 5 years.
- According to the new rules of EPF, if the account holder has registered his or her PAN card then 10 % TDS will be deducted. However, if the withdrawal is done without a registering PAN then TDS of up to 34% will be deducted from the withdrawn amount.
- If a person’s salary is less than the exempted amount even after adding the PF withdrawal amount then he or she is required to fill form 15G at the time of a withdrawal.
- Senior citizens are required to fill form 15H to enemy taxation.
- No TDS will be deducted in case of transfer of funds from an employer to a new one.
- No TDS will be deducted if a person had to leave the job due to severe illness or due to the closure of the organisation and other situations where the employee do not have any control.
Points To Remember
While making an EPF claim the following points should be kept in mind
- If the employee has transferred the PF balance from the old employer to PF account under the new employer then it suggests a continuation of employment.
- If an employee claims withdrawal due to circumstances which are beyond his or her control (like severe illness), then the withdrawal amount will be tax exempted.
- In all other circumstances besides the reason mentioned in point b, if withdrawal claims are made prior to completion of five years then the amount withdrawn will be taxable.