A comprehensive overview of PF withdrawal laws in India for hassle-free home buying

It is common knowledge that a down payment and other lump sum payments are necessary for the purchase of a home. Even though many homebuyers depend on Provident Funds (PF) for their retirement, they are sometimes unaware of the requirements to use PF to purchase a home. For a hassle-free home purchase, we have outlined the complete procedure, including the PF withdrawal laws in India.

For salaried professionals, the government manages the Provident Fund (PF), which is a mandatory retirement savings program. It is handled by the Indian Ministry of Labour and Employment’s Employees Provident Fund Organization (EPFO). Specifically, PF is a monthly program in which both the employee and the employer make equal contributions to the PF account (12 percent of the basic income plus Dearness Allowance) (DA).

The Employee Provident Fund (EPF) scheme’s objective is to give employees a lump sum payment when they retire. But, under certain terms and conditions, employees may also withdraw the money prior to their professional retirement. An employee might use PF withdrawals to build a house, acquire land, or acquire other types of property. To withdraw PF for a property, a homebuyer must, however, meet a number of requirements.

What are the requirements for a PF withdrawal in 2023 for a property purchase?

The PF balance can only be withdrawn by salaried professionals after five years of service, according to Amit Goenka, managing director of Nisus Financial. The withdrawal cap is additionally determined by the purchase’s intended use. For instance, if an employee wants to buy land, they can withdraw either the amount needed for the plot or the lesser of 24 months’ basic pay plus Dearness Allowance (DA). As opposed to this, the amount withdrawn for purchasing or building a home will be equal to the lesser of 36 months of basic income plus DA, the actual cost of the property, or the amount necessary for construction.

The amount withdrawn for a home purchase or building a house can be up to 90% of the PF balance, according to the recently introduced para-68BD in the EPF Plan, 1952. Home loan EMIs may also be paid with the PF withdrawal.

Condition for withdrawing PF to buy a house in 2023

• If you withdraw your PF five years before opening the account, it is subject to taxation as “Income from Other Sources” if you do so. The amount withdrawn will be subject to a 10% Tax Deducted at Source (TDS) fee.
• Except for your spouse, the PF amount cannot be used to jointly acquire a property.
• Only new properties may be purchased with PF funds. It cannot be utilized to purchase a home on the secondary market.
• 90 percent of your PF can only be withdrawn once you are 54.
• If you switch jobs, you are not required to withdraw your PF because you can keep using the same account while working for the same employer.
• You can obtain a loan on your PF, but only up to a certain amount.
• A person may take 75% of their PF balance after a month of unemployment or quitting their job, and the remaining 25% the following month.

Also, if PF money is taken out to build or renovate a home, the development work must start within six months and end within a year of the final PF installment being taken out. When buying a house, the transaction must be completed within six months of the money being withdrawn. The PF amount may be withdrawn in one or more installments at the employee’s discretion.

What are the documents required for a PF withdrawal?

The following documentation must be provided by EPF members in order to make a PF withdrawal:

• Forms like Form 19, Form 10C, Form 10D, and Form 31
• a pair of revenue stamps
• current bank statement photo identification evidence
• A canceled cheque from the bank account where you are the only account holder as proof of address, such as an Aadhar card (The cheque must contain IFSC code and account number)

How do I withdraw PF to buy a house?

Buyers who wish to withdraw their PF funds in order to purchase a home must do the following steps:

• Section 68BC of the EPF Scheme permits buyers who are part of a cooperative housing society or registered housing society (with at least 10 members) to withdraw the EPF sum.
• Non-member salaried staff may also withdraw cash for personal use to purchase the property.
• The commissioner’s certificate of PF contributions and composite claim forms must be submitted by potential buyers. A letter of authorization for paying Equated Monthly Instalments (EMI) from PF in the case of a home loan. 
• Visit the official EPFO website and attach your Aadhaar number and UAN number for online PF withdrawal.
• Complete the PF withdrawal form and attach any supporting paperwork and bank account information.
• The cash will be credited to the associated bank account in 15 days after careful review and consideration of eligibility.

Online withdrawal of Provident Funds using the New Form

• Use the official UAN portal to update your Aadhaar number. Link the employer’s authentication of the Aadhaar to the UAN.
• Visit the EPF member portal and complete the online withdrawal form.
• Mention your bank account in accordance with your EPF account.
• Once the form is submitted and properly filled out, it will take 15 days for the money to be credited to your bank account.

Online withdrawal of Provident Fund using an Old Form

• Get Form 19 by visiting the EPFO website. Also, your former employer may provide you with this.
• Provide the IFSC code and any necessary information, such as the PF account number, employment information, and bank account information.
• Provide a bank account’s canceled cheque as proof of your account.
• Send the properly completed form with your employer.
• The form will be attested by your employer and sent to the regional PF office for processing.
• Your bank account will immediately receive credit for the amount you withdrew.

Note: Compared to using the online process, this approach might take longer. Also, you may quickly track the application process using the online PF facility.

How to withdraw PF for a home loan in 2023?

The PF balance may also be used to pay off a mortgage in accordance with the PF withdrawal regulations. Members and their spouses may withdraw their PF balances to pay off their outstanding loans under Section 68-BB of the EPF plan. Nevertheless, these withdrawals are only permitted for the equivalent of 36 months’ worth of basic pay and dearness allowances (DA). Employees who have served 10 years are likewise eligible for this choice.

In this situation, it is essential that the mortgages be obtained from licensed lenders, such as the state government, any public financial institutions, a non-bank housing financing firm, state housing boards, or municipal corporations.

How to withdraw PF balance for home renovation?

• The employee is permitted to withdraw money from his EPF account for the purpose of renovating and rebuilding his home.
• The home must be owned solely by him or her, or jointly with a spouse.
• The employee must serve for at least five years.
• The member’s withdrawal limit is 12 times his monthly basic wage and DA.

How to withdraw PF for home construction?

Employees must adhere to these procedures for home construction through PF withdrawal:

• Although an employee can get up to 90% of their EPF contribution, they must have worked for at least five years before they can do so.
• The amount will be taxed at a 10 percent Tax Deducted at Source  (TDS) if PF is taken before the completion of five years
• This PF withdrawal can be used for joint purchases with a spouse, whether the owner is an EPFO member, their spouse, or both. 
• Such withdrawal can be made in installments, and the home building must start within six months of the first installment and twelve months of the last installment 

Early PF withdrawal in 2023: Tax implications

“If an account holder withdraws the PF money in a lump sum, the same will be exempt under Section 10(12) of the Income Tax Act, 1961, provided the employee has completed five years of service,” says Pramod Kathuria, CEO of Easiloan. Any sum beyond Rs 2.5 lakh in interest on EPF will be taxable as “income from other sources” and be subject to tax. If only the employee and not the employer contribute to the PF, the barrier will rise to Rs. 5 lakh.

Also, Kathuria advises that rather than depleting the corpus by taking a larger sum out of the PF, it would be prudent to merely fund the down payment on a new property or remove a little amount from it. Also, if you are over 45, you should steer clear of PF withdrawals because you should be concentrating on building up your retirement funds during your last 15 years of employment.

Finally, if you decide to proceed with the withdrawal, make sure that you receive ancillary benefits like tax exemption (if you have held a PF account for more than five years) and select a property that has the potential to grow faster than your PF amount.

Is it a good idea to withdraw PF amount to purchase a house?

It might be conceivable to withdraw PF funds in order to buy a home, but experts advise against it. It is recommended to use this fund solely for its primary objective, which is to provide some cushion during retirement. If you continue to make contributions to this corpus and do not take any cash out during the interim time, compounding will work in your favor during your working years. As a result, you will have a sizable corpus that many salaried people might find challenging to accumulate.

Can you use your entire PF balance to buy a home?

When it comes to withdrawing PF money for a property purchase, the EPF program has several limitations. An employee may withdraw either 24 months of basic pay plus DA or the actual cost of the plot, whichever is lower, for the purchase of land. The employee may withdraw 36 months of base pay plus DA, the actual cost of the property, or the necessary funds for development in order to purchase or construct a concrete structure.

Homebuyers should be aware of the terms, circumstances, and ramifications of the procedure before choosing it, even though PF could seem like one of the finest options to obtain cash for a home purchase.

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