How EPFO Withdrawal Rules Can Help in Buying a 2BHK Flat in India

Suppose, a 45-year-old individual planning to buy a Rs.1 crore 2BHK flat say in Pune. He is facing a financial challenge of arranging the 30% down payment, which amounts to ₹30 lakh. If the person is an active EPFO member, the updated withdrawal rules can come as a relief. Actually, I was reading a news Sep’2017 news article on the updated EPFO withdrawal rules. This article prompted me to write this article on how EPFO members can use the retirement corpus to fund a house purchase. Let’s explore how the new withdrawal rules can help to purchase a new home. .

EPFO Rules for Housing Withdrawals

Under EPFO’s withdrawal provisions, members can partially withdraw funds from their EPF account for specific purposes, including the purchase or construction of a house. The following conditions apply:

• Eligibility: The member must have completed at least 5 years of service.
• Withdrawal Limit: The withdrawal is capped at 90% of the total EPF balance, including the employer’s and employee’s contributions.
• Purpose: The funds can be used for purchasing a ready-to-move flat (resale) or constructing a house

Under EPFO rules for housing withdrawals, eligible members can access their EPF savings to fulfill housing-related needs. The funds can be utilized for various purposes, including purchasing a house, flat, or residential plot, or for construction.

For withdrawals related to ready-to-move flats or individual construction, the withdrawal amount is limited to the lesser of 90% of the total EPF balance (inclusive of employer and employee contributions) or the total cost of the property.

Additionally, the scheme also facilitates housing purchases through registered societies, with direct payments possible to the seller, society, or builder, based on the member’s request.

EPFO’s simplified documentation and self-certification process enhance accessibility and encourage members to utilize their long-term savings for homeownership. You can visit the EPFO website know which claim form to submit to get an advance for purchase of home.

Steps to Utilize EPF for Down Payment

1. Check EPF Balance: The individual should log in to the EPFO portal to check the available balance in their EPF account. The amount eligible for withdrawal will depend on the total corpus.
2. Apply Online: If the Universal Account Number (UAN) is linked to Aadhaar and the bank details are seeded, the withdrawal request can be made online without employer approval.
3. Documentation: The member needs to provide proof of the housing transaction, such as an agreement of sale or other relevant documents.
4. 4. Self-Certification: EPFO’s updated process allows self-certification for withdrawals, simplifying documentation requirements .

Example Calculation

Assume the individual’s EPF balance is say Rs.35 lakh. They can withdraw up to 90% (Rs.31.5 lakh) for the flat purchase. This amount exceeds the required ₹30 lakh down payment, making EPFO a viable funding source.

Tax and Interest Implications

• The withdrawal is tax-free since the member has over 5 years of continuous service .
• Interest will stop accruing on the withdrawn amount, which impacts long-term retirement savings. This trade-off should be carefully considered.

Example of Using EPFO Funds for a House Purchase

Suppose there is a hypothetical person named Amit who needs funds to buy a flat in Pune. He is salaried employee, plans to purchase his first house.

He decides to withdraw funds from his Employee Provident Fund (EPF) account to make a down payment.

After verifying his eligibility, he follows these steps:

1. Check Eligibility: Amit learns he can withdraw EPF funds for house purchases if he has completed at least 5 years of continuous service and the property is registered in his or his spouse’s name.
2. Amount Limit: He confirms that the maximum withdrawal is up to 90% of his EPF balance. His total EPF corpus, including employer and employee contributions, is Rs.10 lakh. Hence, he can withdraw Rs.9 lakh.
3. Gather Required Documents: Amit prepares necessary documents, including property purchase agreements, Aadhaar-linked UAN, and bank account details.
4. Apply Online: Using the EPFO Member Portal, Amit selects “Form 31” for a partial withdrawal. He submits details of the property and uploads required documents.
5. Approval Process: EPFO verifies the details. Since Amit has an Aadhaar-linked UAN, the process is seamless, and the amount is credited to his bank account within 15 days.
6. Utilization of Funds: Amit uses the withdrawn amount as a down payment to secure his dream home.

This example highlights the process of how people can use their EPF corpus to fund a house purchase. Read: Rent vs buy house decision explained.

Conclusion

The updated EPFO withdrawal rules are designed to offer flexibility and financial assistance for significant life goals, including homeownership.

By leveraging these provisions, the individual can secure their dream flat in Pune while balancing long-term savings with immediate priorities.

However, careful planning and consultation with a financial advisor are recommended to ensure minimal impact on retirement savings.

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Have a happy investing.