During the COVID-19 pandemic, the employees’ provident fund (EPF) withdrawals increased manifold, as a lot of people faced financial crises due to factors, such as job losses, pay cuts, and COVID-related medical expenses.
In the period from April 1, 2021, to January 31, 2022, the Employees’ Provident Fund Organisation (EPFO) settled 26.9 million claims, disbursing Rs 90,567 crore to its members. During the lockdown (between March 25, 2020 and August 31, 2020), salaried employees withdrew Rs 39,400 crore!
One is allowed to make premature withdrawals from his/her EPF account under certain specific circumstances. Here’s when you can make those premature withdrawals
When Can You Withdraw Your EPF Balance And For What Purpose?
According to Adhil Shetty, CEO, BankBazaar.com, an online financial marketplace “partial withdrawal from EPF accounts is permitted in case of an emergency, such as medical emergency, house purchase or construction, and higher education.”
Says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm: “If someone is in service for at least seven years, partial withdrawal from EPF up to 50 per cent of available balance is allowed for the marriage of self/son/daughter/brother/sister.”
Here are the instances under which one make withdrawals from his/her EPF account.
For medical emergencies: To bear medical expenses and also for purchasing equipment for a physically handicapped person, one can withdraw lower of the following from his/her EPF:
1. Six month’s salary (basic+ dearness allowance) or
2. Employee’s contribution in EPF along with the interest component.
Also, up to 90 per cent of EPF balance can be withdrawn one year before retirement provided the person is above 54 years of age.
Withdrawal on unemployment: According to Sen, new rules allow for withdrawal in case of unemployment.
“Under the new rule, the EPFO allows withdrawal of 75 per cent of the EPF corpus after one month of unemployment. The remaining 25 per cent can be transferred to a new EPF account after gaining new employment,” adds Sen.
Procedure For Withdrawal
To make a withdrawal from your EPF account, you have to make a withdrawal claim on the EPFO member portal. You do not need the employer attestation if you have seeded your Aadhaar card details with your universal account number (UAN). You have to submit Form 31 and provide a reason for the claim. Depending on the nature of the withdrawal, you may also be required to upload certain scanned documents. It usually takes a month for the amount to be deposited in your bank account.
The EPF Scheme was amended to allow for Covid-19 non-refundable advance of up to 75 per cent of the members’ total PF contributions, or a sum of their three months’ wages, whichever was less. This was allowed in March 2020.
Then again in March 2021, government allowed a non-refundable withdrawal a second time. According to the FAQ section on the EPFO website now, the advance is available once only. Also, the facility for availing advance to fight the Covid-19 pandemic will be available till the pandemic prevails. The government has not officially announced that the pandemic is over. So, based on this FAQ, this option should still be available.
All withdrawals made before the completion of five years of continuous service are subject to tax.
“Withdrawals after completion of five years of continuous service in the EPF are tax-free,” says Shetty.
Where the employment was terminated, or the employee has been rendered unemployed as a result of ill-health and so on, withdrawals will not attract tax. Under such circumstances, if one makes a withdrawal before the completion of five continuous years in the scheme, the principal amount, as well as the interest accrued, will be taxable in the current financial year.
For withdrawals before the completion of five continuous years towards the scheme, one will be taxed 30 per cent of the principal amount and the interest accrued if he/she has not submitted his/her PAN details to the EPFO. If PAN details have been submitted to the EPFO, 10 per cent TDS (tax deducted at source) will be applicable.