Claiming advance EPF is easy, but withdraw it only if you are in dire need

There is no income-tax on the advance, but withdraw only in dire need

With the Covid-19 pandemic causing severe dent in incomes, many are turning to their Employee Provident Fund (EPF) corpus to tide over this period of distress. 

Employees have withdrawn Rs 2,368 crore from their EPF accounts over the past one month. Financial experts say you should only touch your EPF money if you are in dire straits.

Employees can withdraw up to three months of basic wages and dearness allowance, or up to 75 per cent of the amount in their EPF account, whichever is less. This money does not have to be refunded. 

According to Mumbai-based tax expert Balwant Jain, “Income-tax is not applicable on any advance availed of under the EPF scheme.”

How to withdraw

You need to meet a few preconditions to withdraw online. 

Says Prashant Singh, business head, compliance and payroll outsourcing, TeamLease Services: “For online withdrawal of provident fund, an employee needs to make sure of the following: First, his Universal Account Number (UAN) should be activated, and the mobile number used for activating the UAN should be working. Second, the UAN should be linked to your KYC, i.e., Aadhaar, PAN, and the bank details along with the IFSC code.” 

In case you don’t fulfil these conditions, complete your KYC by submitting it on the member portal. If your necessary details —name, date of birth, and gender against UAN— are the same as in Aadhaar, you can link your Aadhaar through the eKYC portal. In case there’s a mismatch in KYC details, ask your HR department to help you make the changes. 

Checking the balance

The first way is by verifying your passbook by visiting https://passbook.epfindia.gov.in/. You can also check it by sending an SMS "EPFOHO<UAN><LAN>" to 7738299899. LAN is the language you need to reply in, and UAN is the Universal Account Number. Finally, you can check by giving a missed call on 011-22901406 from your registered mobile number.

Should you withdraw? 

The decision to dip into your EPF corpus should be taken after weighing the pros and cons. 
 

“The purpose of EPF is to have a large corpus as post-retirement expenses, when your earnings have dried up. It is tax-free money,” says Raghvendra Nath, managing director, Ladderup Wealth Management. 

EPF currently pays an interest of 8.5 per cent, higher than any other fixed-income instrument. Only people desperate for cash, who do not have alternative savings, and don’t have access to loans, should go for this option.

The decision to take a personal loan (interest rate 9.3-24 per cent) or withdraw from EPF should be taken with care. 

“If you are confident of repaying the personal loan within a few months, go for it. Even though the interest cost will be higher than the return from EPF, the absolute cost in rupee terms will be limited. Doing so will provide you with the psychological satisfaction of not having touched your EPF corpus,” says Joydeep Sen, founder, Wise Investor.

What about someone who has taken a loan and is unable to pay EMIs? Should he avail of the bank moratorium or dip into his EPF corpus?

“The decision should depend on the loan amount. If it is small, the extra interest cost on availing of the moratorium will be limited, and you should go for it,” says Sen. 

On the other hand, if the interest cost is very high (because the principal outstanding is large), decide before dipping into the EPF corpus. “Do not break the discipline of saving for a long-term goal like retirement for a small amount of money,” says Sen.