You are most likely aware of employee EPF (i.e. Employee Provident Fund) and the EPF interest rate. Did you know that you can withdraw EPF for repaying your home loan, and save on housing loan interest? In this article, we will walk you through important aspects pertaining to PF/EPF withdrawal for prepayment of the home loan — such as PF withdrawal limit, Provident Fund loan rules, PF withdrawal for home loan repayment procedure, and documents required for PF withdrawal for home loan repayment.
Employee Provident Fund
Employee Provident Fund (EPF), as the name suggests, is a fund meant to come to your rescue when you need it most — at some point in the future. More specifically, it is meant to be of help to you after your retirement. 12% of a person’s basic pay and DA (dearness allowance) is deducted and remitted to their EPF. Additionally, an equal amount is contributed by the employer — of which 8.33% goes towards the Employee Pension Scheme, and the rest to the EPF account. Over time, it would result in a substantial balance in the employee EPF account, at an EPF interest rate of 8.5%.
So, although the employee EPF funds are meant for retirement, he/she is allowed to withdraw funds from the PF/EPF account for certain reasons as specified by the Employees’ Provident Fund Organisation (EPFO).
Withdrawing PF/EPF for Prepayment of Home Loan
Buying a home is an ambitious project for salaried middle-class persons. It is helpful to be able to tap into your employee EPF funds to meet the costs and ease your burden. EPFO allows you to withdraw PF/EPF for buying a house or a flat, renovating an existing house, and even for prepayment of a home loan. In case you want to prepay your home loan and just get over it while saving on housing loan interest, you can withdraw funds from the employee EPF account. Ideally, you shouldn’t, if you can help it, because you need to think of your financial security after your retirement. However, if you have weighed in the cost and benefits, you can go ahead and utilize PF/EPF for home loan repayment.
Read on to know about the PF withdrawal limits, Provident Fund loan rules, PF withdrawal for home loan prepayment procedure and documents required for PF withdrawal for home loan repayment.
PF Withdrawal Limit
According to Section 68BB of The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, you are allowed to withdraw PF for buying or constructing a house or flat, or PF for home loan repayment. As such, you are allowed to withdraw up to 90% of your PF/EPF balance for repaying the home loan. There are certain eligibility criteria for being able to use provident fund home loans.
Provident Fund Loan Rules
- You should have at least three years of service after opening the EPF account, to be eligible for withdrawing PF for home loan repayment.
- You can withdraw up to 90% of your EPF corpus.
- The house in question should be in your name or jointly with your spouse..
- The minimum balance in the EPF should be Rs. 20,000, either individually, or together with the spouse, if the spouse is also a member of EPFO.
- You can withdraw a provident fund for home loan repayment only once.
- You would need a letter of authorization from your employer for PF withdrawal if you have not verified your Aadhar Card.
- If PF/EPF withdrawal is done before 5 years of opening the account, then the amount is taxable.
PF Withdrawal For Home Loan Repayment Procedure
You can withdraw PF for home loan repayment either online or offline. Follow the steps below:
- You would need a Universal Account Number and a phone number.
- Go to the EPFO portal.
- Log in with your UAN and password.
- Go to the 'Online Services' tab and then choose 'Claim'.
- Enter your details - name, date of birth, father's name, PAN number, Aadhaar number, date of joining the company, and mobile number.
- Click on 'Proceed for 'Online Claim'.
- Select the type of claim.
- Select 'PF ADVANCE (FORM 31)' from the drop-down menu.
- Select the reason from the drop-down menu.
- Enter the amount.
- Enter your current address.
- Sign the declaration.
- Click on 'Get Aadhaar OTP'.
- Enter the OTP.
- Click on 'Validate OTP and Submit Claim Form'.
- The amount should reflect in your account within 5 days.
Procedure for PF Withdrawal Offline
- Get Form 19 from the regional office, or download it from the EPF website.
- You can choose the Aadhar or non-Aadhar method.
- For the non-Aadhar version, attach a letter of authorization from the employer.
- Fill in all the fields as applicable (similar to the ones in the online portal).
- Get it attested by a gazetted officer, or postmaster, or notary public or magistrate officer.
- Attach an attested letter, mentioning the reason to withdraw the PF balance.
- Submit the withdrawal application at the regional office.
- You’ll get the amount within three months from the submission of the application.
Documents Required for PF Withdrawal for Home Loan Repayment
- Your PAN card.
- Either your Aadhar card (Or letter of authorization by employer).
- The Universal Account Number (UAN) of your PF/EPF account.
- Your bank account details.
- Your phone number.
- The UAN needs to be linked with Aadhar, PAN, and Bank details.
Should You Withdraw PF for Home Loan Repayment?
You should be saving your PF/EPF funds for a rainy day in the future. Besides, EPF interest rates at 8.5% are higher than normal bank rates.
However, it sometimes makes more fiscal sense to prepay the home loan. It is beneficial if you prepay your home loan early in the tenure when the housing loan interest component is high. Later in the tenure, it is mostly the principal amount, and at that point, it makes more sense to just continue paying the EMI.
If you do withdraw PF/EPF for home loan repayment, invest the EMI saved every month in judicial ways, to secure your future. For more articles on home loans, explore the wide archive of blogs, news, and articles of Property Adviser.