Benefits Of Buying Your Dream Home Through EPF Home Loan

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09:30 AM 27 Jun 2019

If purchasing your dream home is a lifetime achievement for you, but sadly, you are at a shortage of funds. Then, no worries! All thanks to our Indian government for its rescue operation to fulfill the housing vision of employees. Any salaried person under Employee Provident Scheme, who is a part of an establishment, irrespective of it being a government or private sector can utilize their funds for the home purchase.

Employee Provident Fund is a very well-known investment scheme that gained huge prevalence among salaried persons in India for its unmatched benefits. Governed by Employee’s Provident Fund Act 1952, it came into force to provide a supporting future to employees at the time of their retirement. It can also help their dependents in case of an employee death.

What is EPF Housing Loan Eligibility?

To avail, 90% of their Employee Provident Fund amount, the employee should have a minimum of three years of employment under the scheme and must have a minimum of Rs. 20,000/- in their PF account. Fulfilling the requirements, the Employee Provident Fund body will then sanction the amount, including the principal and interest or the purchase cost of the property, whichever is lower. Under this category, an employee can only make one withdrawal of employee provident fund for buying a house during his entire employment.

In the initial days, the utmost withdrawal amount was restricted to total employer’s and employee’s contribution with the addition of interest of 36 months or the overall cost of the property. It is considered as per whichever number was less. To use this facility, the member need not be a member of the housing scheme but should not be a member of EPFO for a total of 5 years. 

As per the new rules, the members get more options to utilize their funds. The time limit has also been deducted to 3 years. The minimum PF balance of the member must be higher than 20,000 either individually or with that of the spouse. However, in this new scheme, a member can withdraw the PF balance only once in a lifetime to pay for the property.

Step-By-Step Process to Withdraw 90% of Your PF to Buy Home

Indian Government has made the withdrawal process of the Employees’ Provident Fund in a quick, efficient manner. The withdrawal procedure can be done in two ways – the EPF member can either opt for the online process or can choose the offline method.

Provident Fund Withdrawal through Online

This technique gives a significant alleviation to each worker as it doesn't require the employer verification or endorsement. Be that as it may, if a representative wishes to pursue this strategy, the employee needs to present the Aadhaar number at the UAN website. It's essential to update the Aadhaar number of the member in the UAN portal and get it verified by the employer and link it to the employee’s UAN number.

Once updated, fill the withdrawal form online at the EPF website. Present the adequately filled form, and the amount will be credited in the employee’s bank account fortnight. As the withdrawal procedure isn't steered through the business and is an immediate method for accommodation, the preparing time is speedier than the offline process. 

Provident Fund Withdrawal through Offline 

Contact the HR group of the business to get Form 19 for EPF withdrawal. The form can likewise be downloaded from EPFO's site. Fill in all the required details, like PF record number, business subtleties, bank account details with IFS code, and so on. You may need to present a dropped check of the linked bank account for reference. 

Present the appropriately filled form to your management. Your employer will confirm the way and send it to the regional provident fund office for further processing. The measure of the corpus gets legitimately credited to your account. This strategy may take a generally longer span than the online procedure. Be that as it may, with the online PF office, the application status can also be tracked.

How to Apply for EPF Home Loan?

Pursue these necessary steps to use your EPF for reimbursing your home advance according to the new PF home loan rules:

  • When an EPF member wants to become a member of the housing society, the person can apply separately or together through the housing society in an endorsed configuration (Annexure-I) to get authentication from the EPFO. 

  • As per the Annexure-! Form the representative's request for the EPF balance and the contributions made by him over the most recent three months before applying. This will help EPFO to decide the amount EMI can be touched base at. Likewise, the member needs to refer to the name and particulars of the bank to whom such a declaration is to be issued.

  • The EPFO at that point issues an authentication in an endorsed arrangement (Annexure-II) demonstrating the remarkable equalization and most recent month's summary in the record. Then again, individuals can take printouts of passbook downloaded from EPFO site and submit to housing party’s or banks. 

  • If a member wishes to utilize PF cash to meet EMI's, at that point notwithstanding Annexure I, an authorization by the member is to be filled in a recommended arrangement. (Annexure-III). 

  • It will convey all the details, including, the PF sum, PF and credit record number, loan specialist name, address, and so forth. One needs to get this form approved by the loan specialist for example branch supervisor of the bank who has endorsed the advance. When affirmed, EPFO will begin moving EMI's online to the bank's or lender’s account.

Home Loan Against Employee’s Provident Fund

The Employee Provident Fund Organisation (EPFO) has launched an EPF housing loan scheme. It enables employees to withdraw up to 90% of their total contributed EPF retirement money for real estate investments. Employee Provident Fund can be used to renovate homes or during the buying process. A housing project doesn't need to be organized by a government body. One can use their PF amount for any non-government housing project.

The Employee Provident funds can be withdrawn to buy a plot of land or construction of the property. It can also be used for renovation purposes to an existing property that has been under the name of the applicant. Or at least he/she must be a joint owner for five years. One can also opt to pay EMIs for the particular EPF home loan using their provident fund. Any excess amount that has not been utilized for the EMI will be refunded back to the employee's provident fund account.

The principal amount that can be withdrawn from the EPF balance is up to 90 percent or the original cost of purchase the property, whichever is less. The balance will be a sum of the employees' share of contribution plus interest and the employer's portion of participation plus interest. In the case of the house is under construction, and the overall cost happens at a lower, or the member doesn't get an allotment of the property. The amount has to be credited back to EPFO within 30 days.

Let's take a sneak peek on some of the benefits of home buyers get while purchasing a home through employee provident fund:

Shortage of Funds

Although the Indian government has launched many schemes to encourage and support the central government’s ‘Housing for All by 2022’. It has been still struggling to achieve its target.

With the employee provident fund, subscribers increased to 50 million. The Indian government, with a mission to fulfill the housing vision, has made some amendments in its existing rule. That employees can utilize their 90% of PF amount for purchasing a home. 

Employee Provident Funds are very beneficial, as compared to the PF home loan rules, where the loan interests are reaching sky-high. Everyone can use some of their extra savings to reduce their financial burden. Employee Provident fund is considered as the best investment scheme for its favorable interest rates. As of now, the government is giving an 8.75% interest for the EPF amount, which is the best interest rate compared to any Indian banks.

EPF Debits to EMI Credits

One of the interesting, beneficial facts about EPF is the increased ability of EPF home loans. In this context, it means for EPF housing loan apart from using 90% of the Employee Provident Fund. One can also pay the EMIs by using their EPF balance. Every month the employee contribution for the PF account will be debited and will directly be credited as EMI for the EPF home loans for banks. This comes very handily whenever the cash flows are short.

To avail of this benefit, an individual is needed to furnish their EPF balance, monthly contributions through passbook printout to the bank. One needs to submit a form, and get it attested by the bank manager and submit it to the employee provident office. This is very advantageous in lowering the overall EMI payment and is a regular payment option until you are an EPF member and have sufficient balance in your EPF account.

Help Your Better Half in Loan Repayment

Employee Provident Fund benefits are not only limited for you, but it also includes your spouse. An individual can apply for an EPF home loan against employee provident fund in case they are planning to purchase a house under his/her spouse ownership. They can withdraw a partial or 90% of the EPF amount for the housing loan repayment.

Indian government provided these relaxation EPF rules for the spouse, is to give aid to prospective homebuyers. In some extreme cases where an employee loses his/her job and is unable to repay their EPF home loan as they are not even eligible to do without an EPF membership. But with this PF home loan rule, their spouse EPF account can be linked to their home loan as a relief to the overall process until they find a job of their own.

Tax Implications on EPF Withdrawal

  • TDS is subjected to a deduction on withdrawal before completing five years of service.

  • If the withdrawal of the EPF amount is less than Rs. 50,000, no TDS is deducted from the amount.

  • TDS is diminished at a rate of 10% on withdrawal if PAN is furnished and 34.608% if PAN is not furnished.

  • TDS rule is not applied when your employment termination is under some critical scenarios like the company had a shutdown, reductions, and employee layoffs, etc.

  • TDS is not applicable where the service cannot be continued due to some severe medical conditions such as a physical or mental disability.

Conclusion

Although there are excellent benefits of taking an EPF home loan through the Employee Provident Fund. All major financial advisors suggest that employees should withdraw their retirement fund only if its to purchase a first home. And is not intended for real estate investment purposes. As in most cases, the cost of a home loan is lesser than the receivable interest of the EPF amount.

Are you looking to own a home in your price range? Browse PropertyAdviser.in, India’s first-ever property directory to find your dream home from a vast properties options along with accurate information on home loans.

By Govi