A Guide to Loans Against EPF

Imagine wanting to purchase a beautiful house or an amazing car but not having the finances to do so. Sometimes needs and wants don’t always sync with the finances required for the same. In such cases availing of a loan is the best possible solution. Home loans, auto loans, education loans, or even personal loans, there is a multitude of loans available for various requirements. Most banks and Non-Banking Financial Institutions (NBFCs) provide different types of loans with varied repayment terms and interest rates depending on the type of loan availed. However, most of these loans also require collateral and they have certain eligibility criteria that need to be met.

But what if there is another way to procure financial help without having to repay it back? The solution being talked about is to avail a loan against the Employees’ Provident Fund (EPF).

Loan Against EPF

Generally, one needs to have retired from service in order to access the amount in the EPF account. However, there are certain exceptional situations wherein the amount can be withdrawn earlier. This is sometimes known as EPF loan or EPF personal loan. This is, however, an inaccurate description as unlike other loans, this amount does not have to be repaid. The EPF loan eligibility varies depending on the reason for which the EPF corpus is being withdrawn.

The situations in which an individual can withdraw the amount earlier are as follows –

  • Individuals over the age of 54 can withdraw up to 90% of the accumulated balance
  • Individuals who have been unemployed for more than a month can withdraw 75% of their EPF corpus and if he/she has been unemployed for over 60 days, the balance 25% can be withdrawn as well
  • EPF corpus can be withdrawn for other expenses such as marriage, education, home loan payments, home repairs, in case of natural calamities, medical treatments, purchase of a home, etc.

However, it is to be noted that there are certain other criteria that will have to be met as well in order to be eligible to partially withdraw EPF corpus, as illustrated in the table below.

Reason for Withdrawal Withdrawal Limit Number of years in Service Maximum frequency of Withdrawal
Marriage Up to 50% of employee’s share Minimum 7 years 3 times
Education Up to 50% of accumulated funds Minimum 7 years 3 times
Medical Treatment 6 times the monthly wage of employee and dearness allowance N/A No limit
Purchase of home/plot

For a plot: Up to 24 times the monthly wage and dearness allowance of the employee

For home: Up to 36 times the monthly wage and dearness allowance of the employee

5 years only once
Home Renovation 12 times employee’s wage 5 years Only once
Home Loan Repayment Up to 90% of the employee and employer’s contribution 10 years Only once
Lockout Withdrawal amount is equal to the unpaid wages N/A No limit
Natural Calamity Up to 50% of the employee’s share in EPF N/A No limit
Withdrawal prior to Retirement Up to 90% of the accumulated balance in the fund + the interest At the age of 57 years or above Only once

While EPF contributions are tax exempted and deductions can be claimed, availing partial withdrawal of EPF corpus prior to completing 5 years of employment is taxable if the amount that is withdrawn is over Rs.50,000. The tax deducted at source or TDS will be at the rate of 10%. In case the individual does not have a PAN card, the TDS will be at the rate of 34.6%. This will however not be applicable if the said individual wishes to partially withdraw EPF due to lockout or a medical condition.

How to Avail EPF Loan

Assuming that an individual meets the EPF loan eligibility as mentioned above, he/she can apply for the withdrawal either online or offline. There are certain documents that are needed prior to applying for the same.

Documents Required for EPF Loan

There are a few basic documents that are necessary while applying for the withdrawal of EPF corpus. These are –

  • Form 19 – This is the form necessary to avail the final PF settlement
  • Form 10-C – This is necessary for withdrawal of pension benefit
  • Form 31 – This document is necessary for partial withdrawal of EPF in case of an emergency
  • Universal Account Number (UAN) – This is given by the EPFO and is a member ID that is allotted to an individual by different establishments. Multiple PF account numbers are allotted to an individual under a single UAN.
How to Apply for EPF Loan Online

Applying for an EPF loan online is quite easy. The steps given below will have to be followed -

  • Individuals will have to visit the member portal of EPFO and login using the UAN and password. In case the UAN number has not been activated then this must be done first. Additionally, Aadhaar number, bank account details, and PAN number must be linked to the EPFO database first
  • Click on ‘Online services’ and then select ‘Claim Form – 31, 19 & 10C’
  • A new page will appear where personal details such as Aadhaar number, date of birth, mobile number, etc. will be displayed on screen. The last four digits on the bank account registered with EPF will have to be entered now.
  • Click on ‘Verify’ and approve the undertaking by checking ‘Yes’
  • Then select ‘Proceed for Online Claims’ and choose the type of claim. The reason for request, amount to be withdrawn, and the home address will have to be entered nextClick on ‘Verify’ and approve the undertaking by checking ‘Yes’

After the EPF loan has been approved, it will be credited directly to the individual’s bank account within 15 to 20 days.

How to Apply for EPF Loan Offline

In case individuals cannot apply for an EPF loan online, then the same can be done offline as well. The following steps will have to be followed for the same –

  • Customers will have to download the relevant form from the EPFO website and fill up all the necessary details required such as reason for withdrawal, bank account number and so on
  • This document should then be submitted to the accounts department of the organization that the individual is working for
  • This application is then forwarded to the EPFO and if approved, the amount will be credited to the individual’s bank account

The current situation that the world is going through in light of the COVID pandemic is unique. With thousands having lost their jobs, individuals are looking to build savings or pay their bills. Currently, the EPFO has allowed subscribers to avail a non-refundable advance of up to 3 months of basic wages as well as a dearness allowance OR 75% of the balance in the EPF account, whichever is less. Individuals can access further details regarding this on the EPFO website.

Contributing to an EPF is compulsory for those employed within an establishment that has a workforce of more than 20 individuals and where the base salary is Rs. 15,000 and above. However, this is done so that employees have a retirement corpus to look forward to. While being able to withdraw from an EPF account is definitely an advantage and can always help, one must ensure that the amount is withdrawn only after careful consideration as having a sum kept aside for post-retirement is also important.