When we were kids, one of the common things we did was to put our pocket money in our piggy bank. We had nothing to worry back then except for deciding maybe which ice cream flavor to choose. We didn’t have the urge to buy a car or build a house. So, we used to break it when we needed it to get ourselves a treat, we used it without worrying about future. PF withdrawal and Pension schemes are akin to our retirement piggy bank.
As we grow up, we put our savings towards them to create a hefty retirement corpus. But it’s a completely different ballgame now. We have got a lot of things to spend on – buying a car, buying jewelries, building a house and so on. To make things worse, our actions have a far-reaching consequence which we sometime do not fully consider before breaking into our savings. If we succumb to our urges and break the “piggybank” and jump straight into it, we end up with a huge hit in our retirement corpus.
So, Govt. in principle has made it a very stringent process to access PF corpus. Nevertheless, the process is as strong as the individuals in it, so there are still ways you can circumvent them.
Rules in PF withdrawal
Under special circumstances, you can withdraw funds partially from EPF if you fulfill some conditions. We have collated the important points below:
| Reasons for withdrawal | Max withdrawal limit | Min period contribution | Conditions |
|---|---|---|---|
| Education | 50% of your EPF contribution | 7 years | Only to finance your further studies or the education of you children post 10th standard |
| Marriage | 50% of your EPF contribution | 7 years | Marriage of self, brother or sister, son or daughter |
| Land purchases | 24 x (Your monthly wages + DA) | 5 years | Land to be owned by you, spouse or both jointly |
| Construction or purchase of a new house | 36 x (Your monthly wages + DA) | 5 years | House to be owned by you, spouse or both jointly |
| Home renovation | 12 x Your monthly wages | 5 years | Home to be renovated should be owned by you, spouse or both jointly |
| Home loan repayment | 90% from both yours and the employer’s contribution to the EPF | 1 year | i. You, your spouse or both jointly own the purchased property |
| ii. You must furnish the required documents put forth by the EPFO, for home loan repayment | |||
| iii. The corpus in your account (or together with your spouse) has to be above Rs. 20,000 | |||
| Before retirement | 90% of the accumulated corpus with interest | After you reach 57 years of age | None |
You can also make a 100% PF withdrawal from your EPF account. However, you are eligible to do so only when you’re retired or when you’re unemployed for more than 2 months (must be certified by a gazetted officer).
The process to be withdraw funds can done online through your EPF Portal.
The hit on your returns
In our previous article, we illustrated the effect of annual step up in a provident fund and the level of impact it created in your corpus. Similarly, let’s see what happens to your maturity amount if you make a PF withdrawal.
Assume Jacob is an employee in an MNC drawing a salary of ₹60,000 per month. He contributes ₹7,200 on a monthly basis towards his PF. At the end of 10th year, he is in need of funds to renovate his house. If we refer to the above table, we can see that for home renovation the maximum withdrawable amount is 12 times the monthly wages.
Jacob decided to withdraw the maximum permissible limit for the renovation process and this came to the tune of ₹7,20,000 (12×60,000). After withdrawing the said amount, he had ₹6,05,993 in his corpus. He continued with the same contribution of ₹7,200 for another 20 years. Since he withdrew the money, his corpus took a hit of almost 53%. Jacob could’ve avoided this, if he had only planned his actions better.