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Home Articles How To Get A Loan From EPF Account?

How To Get A Loan From EPF Account?

IndianMoney.com Research Team | Updated On Wednesday, February 06,2019, 06:52 PM

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How To Get A Loan From EPF Account?

 

 

You work for a reputed Company and earn a handsome salary. But, is your entire salary yours? No, if you are a salaried employee, you have to compulsorily invest a part of your salary in the employee provident fund, popularly called EPF.

An amount of 12% of your basic salary, is compulsorily deducted by your employer. This amount is deposited in an account in your name, called the employee provident fund. Your employer makes an equal contribution (contributes the same amount as you have contributed), to this account. This account is maintained by the EPFO and interest is paid on it. You get this money when you retire, to enjoy a happy retirement.

But, what if you need money for something really important in life, Right Now? What if you need money for your marriage? What if you need money to buy a plot of land which could give great returns in a few years? What if you need money to repay your home loan? There’s some good news. You can take a loan from your EPF account and you don’t need to return it.

Want to know more on loans and retirement planning? Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website. IndianMoney.com offers Free, Unbiased and on-call financial advice on Insurance, Mutual Funds, Real Estate, Loans, Bank Accounts and capital markets.

1.What is EPF Loan?

Employer and the employee make contributions to the EPF for employee retirement. The purpose is to provide employees with a lump sum at the time of retirement. The Employees’ Provident Fund Organisation (EPFO), has allowed employees to make partial withdrawals from their PF accounts and the money can be used as a personal loan to fund emergencies. The EPFO thoroughly verifies if the application is genuine or not, before granting permission to avail the loan from the EPF account.

2. How to get a loan from EPF account?

Strictly speaking this is not a loan. It’s an advance which you can avail only in specific situations. You can get this advance even when you are still working (in a job with your current employer). The amount you can get as an advance depends on the specific situation you need the money and also the number of years, you are in service. You have to submit Form 31 called the EPF advance form, through your employer to the EPFO, along with relevant documents. If you need the advance for your marriage, you need to submit the marriage invitation card along with the application. In the EPF Form 31, you will have to give PF account number, salary and bank account details. Your claim is then processed and money is directly credited to your bank account.

Interest Rates:

The EPFO has reduced the rates of interest on deposits to 8.55% for the financial year 2017-18 following a decline in the rates of interest. The rate of interest for the year 2016 for the Employees’ Provident Fund was 8.65%.

EPF Advance Rules:

There are a certain set of rules implemented by the EPFO to avoid premature withdrawal of provident fund. The EPF Advance rules are implemented to avoid frequent withdrawals by the employee from PF accounts and instead save the money for retirement. Listed below are the EPF Advance rules:

  • For the purpose of purchase of house/flat, construction of site and acquisition of plot: To avail loan for this purpose, an employee must serve a minimum of 5 years of continuous service and can withdraw the employees share along with interest or total cost, whichever is lesser. The instructions to avail loan for the above-mentioned purposes are listed in Para 68B of the EPF scheme 1952.
  • Withdrawal of fund for the repayment of loans in special cases: The instruction and guidelines for advances made for the above purpose is mentioned in Para 68BB of EPF scheme 1952. The applicant needs to complete 10 years of continuous service and must submit a certificate from the agency indicating outstanding principal and interest along with form 31 to withdraw funds.
  • Grant of advances in special cases:
  • In case of lock-out or closure of establishment for more than 15 days or in case the employee is rendered unemployed without compensation or has not received salary for more than 2 months, the employee can withdraw funds, without serving any service period.
  • In case of establishment’s closure for more than 6 months and employees continued employment without compensation, the employee can withdraw up to 100% of Employer Share with interest.
  • In case of discharge/dismissal/retrenchment of an employee he/she can withdraw Maximum of 50% of Employee share with interest.
  • Advance from the fund for illness in certain cases: To avail loan for medical treatment of self or for the treatment of family members, the employee can withdraw 6 month’s basic wages and DA or employee share with interest whichever is lesser by submitting Certificate C signed by Employer and Doctor along with EPF form 31.
  • Advance from the fund for marriages or post matriculation education of children: To withdraw funds from the EPF account for marriage of self/daughter/son/ brother/sister or for post matriculation education of son/daughter, the applicant must complete 7 years of continuous service and can withdraw 50% of Employee share with interest.
  • Withdrawal before Retirement: An applicant can withdraw the majority of his/her corpus, after attaining the age of 54 and within one year of retirement/superannuation, whichever is later.

SEE ALSO: How To Download EPF Mobile App: M-Sewa app of EPFO?


EPF Loan Calculator:

The employee provident fund (EPF) calculator helps calculate the sum of money your PF account accumulates on retirement. The interest rate and balance of EPF loan can be calculated through the EPF loan calculator online.

The interest on EPF fund is calculated based on the contribution made by the employee and the employer. You also must enter few other details like current age, the age you wish to retire, monthly salary, the total monthly EPF contribution and the interest rate earned on the deposits to calculate the PF balance and interest.

EPF Loan Status:

The applicants, who have submitted a claim at any of the branches of the Employees’ Provident Fund Organization appealing for the EPF loan or withdrawal, can check the status of the EPF loan. To raise an enquiry on the status of EPF loan, the applicant must have their PF account number. By providing the PF number you can easily check the status online. An applicant availing an advance from the EPF account does not need to pay back the funds withdrawn. However, applicants must withdraw funds from EPF account, only as a last resort as they have to compromise retirement goals.

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2. When can you avail a loan against EPF?

You can avail a loan against EPF based on the number of years of service. You have to submit an EFP advance form, Form 31, through your employer to the EPFO, along with the relevant documents.

In the EPF Form 31, you will have to give your EPF account number, salary and bank account details. Your claim is then processed and money is directly credited to your bank account.

Note the situations in which you can get a PF loan or loan against PF

  • Marriage:

You can take a loan against EPF for marriage expenses of self/brother/sister/daughter/son. The maximum amount you get is 50% of your (employee) share + interest, at the time of presenting your application.

You have a maximum of only 3 withdrawals in your whole life. Your membership period must be 7 years. You might need to show the marriage invitation card.

  • Education:

You can take a loan against EPF for education fees of self/brother/sister/daughter/son. The maximum amount you get is 50% of your (employee) share + interest, at the time of presenting your application.

You have a maximum of only 3 withdrawals in your whole life. Your membership period must be 7 years. You might need to show a certificate regarding course of study and estimated course fees.

  • Medical expenses:

A loan against EPF can be withdrawn for medical treatment for self, spouse, son, daughter, dependent father or mother. The maximum amount you get is 6 months basic salary + dearness allowance or your (employee) share with interest, whichever is less.

You have a maximum of only 1 withdrawal in your whole life. You can get this loan anytime. You may need a doctor’s certificate.

  • Repayment of home loan:

You can take a loan against EPF to repay your outstanding home loan from a Nationalized bank or a registered co-operative society. The amount of loan that you can get is 36 months basic salary + dearness allowance or the total of your (employee) share and employer’s contribution to EPF with interest or total outstanding principal + interest, whichever is least.

You have a maximum of only 1 withdrawal in your whole life. Your membership period must be 10 years. You might need a certificate from the bank/lender showing outstanding principal + interest.

  • Purchase of a home or plot of land:

You can take a loan against EPF to buy a house or a plot of land. The amount of loan you can get is 36 months basic salary + dearness allowance or the total of your (employee) share and employer’s contribution to EPF with interest or the total cost of purchase of the house/plot, whichever is least.

You have a maximum of only 1 withdrawal in your whole life. Your membership period must be 5 years. You have to take a loan against EPF only as a last resort. It’s the money you need for retirement.

  • Company lockout:

If your company is locked out or doesn’t pay you wages for at least two months or closed for at least 15 days, you can avail a loan against EPF. The amount of loan in this case will be equal to your unpaid wages. (provided your loan from  EPF account has balance in the employee contribution). If you company has been locked out for more than 6 months, you can utilize the employer’s contribution as well.

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  • Renovation of house:

The maximum amount you get is 12 times your wages. The said property should be more than 5 years old and must be owned by you or jointly owned with your spouse.

  • Calamity:

Natural calamity can incur huge loss. In such cases, you can withdraw from provident fund. There is no condition of minimum years of completion of service. You will have to furnish certificates of damage from the relevant authority. The amount of loan that you can get is 50% of the employee share.

3. Rules for withdrawal of EPF amount before retirement:

An EPF account matures when you turn 58 years. However, you can withdraw before your EPF account matures. Withdrawal from EPF comes with certain conditions, as follows:

1. If you want to withdraw within 5 years:

  • TDS @ 10% is charged on your withdrawal if your PAN is registered.
  • In all other cases, funds are taxed at 30%.

2. If you want to withdraw after 5 years:

  • No tax is charged.

3. Loss of job:

  • You can withdraw 75% of the accumulated corpus after being unemployed for a month.
  • You can withdraw 25% of the accumulated corpus and go for final settlement after being unemployed for two months.

For more information about EPF visit EPF website: https://epfindia.gov.in/site_en/index.php.

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