Employees Provident Fund (EPF) is one of the most popular financial tools used by the salaried class to accumulate retirement corpus. Organizations make it a point to deduct a certain portion of your salary towards the EPF. You can see that in your salary slip showing the employee contribution towards his/her EPF account. An equitable contribution is also made by your employer.
A Public Provident Fund (PPF) account is one of the most tax friendly instruments for long term savings as interest and maturity proceeds are exempt from tax. It also enjoys tax deduction under Section 80C. Apart from these benefits, a PPF account holder can also avail a loan on the basis of the PPF balance standing to his credit.
How to Get a Loan against EPF?
After knowing the withdrawal norms related to the purposes for which advances are granted against EPF, it’s time you should know how you can apply for the loan against EPF reserves. All you need to do is to submit Form 31 along with other necessary documents to your organization, which will then forward the same to EPFO for authentication. Details to be filled in Form 31 include the following
- Account number of the EPF account from which you wish to get the advance
- Bank account number where you want to get the amount credited
- Salary details
Eligibility
Loan can be availed from the 3rd to 6th financial year of the account. If the account was opened in 2020-21, loan can be availed from 2022-23. It will be a short term loan for 36 months and must be repaid by then.
Process to avail a Loan
Withdrawals against the EPF account are more of an advance than a loan. Advances can be taken during the course of employment under certain conditions. Apart from the reason for the advance, the number of years of service that the employee has completed also plays a vital role. The advance form, Form 31, must be submitted with other required documents in order to avail a loan. The process to avail the loan can be completed on the EPFO portal. Employees must use their UAN login to the portal. However, individuals can login only if the UAN activation process is complete.
Interest
The rate of interest applicable on the loan is as low as 1% per annum if the amount is repaid before the end of 36 months. However, if the amount is repaid after 36 months, interest is charged at the rate of 6% per annum from the date of disbursement.
Conditions when a loan can be availed
The EPFO has enforced certain rules so that individuals do not avail partial withdrawals or advances frequently. The main aim of enforcing these rules is for individuals to save money for their retirement. Given below are the conditions where advances can be availed against the EPF account:
1. Marriage
Given below are the conditions that must be met in case individuals wish to take an advance for the purpose of marriage:
- Up to 50% of the employee’s contribution made towards EPF can be withdrawn.
- The money can be withdrawn for the marriage of the EPF member, his/her children, and siblings.
- The EPFO member must have completed at least 7 years of service.
- Up to 3 withdrawals are allowed.
2. Illness
Given below are the conditions that must be met in case individuals wish to take an advance for the purpose of medical treatment:
- In case the withdrawal is for the medical treatment of the EPF member, his/her spouse, parents, and children.
- The employee’s entire contribution or 6 months DA and basic salary, whichever is lesser, can be withdrawn.
- No minimum service period required.
3. Construction or Purchase of a House
Given below are the conditions that must be met in case individuals wish to take an advance for the construction or purchase of a house:
- EPFO members must have completed at least 5 years of service.
- The property must be in the name of the EPFO member, his/her spouse, or jointly owned by them.
- Only one withdrawal is allowed.
- The total employee’s and employer’s contributions that have been made or 36 times the employee’s basic salary and DA, whichever is lesser, can be withdrawn.
4. Education
Given below are the conditions that must be met in case individuals wish to take an advance for the purpose of education:
- Up to 50% of the contributions that have been made by the EPFO member can be withdrawn.
- Up to three withdrawals are allowed.
- Money can be withdrawn for post-matriculation education of the EPFO member’s children.
- EPFO members must have completed at least 7 years of service.
5. Unemployment
In case an individual is unemployed for duration of 1 month, he/she can withdraw up to 75% of the EPF amount that is available. In case an individual is unemployed for duration of 2 months or more, the entire EPF amount can be withdrawn.
6. Retirement
Up to 90% of the available EPF balance can be withdrawn by EPF members one year before their actual retirement or after they attain the age of 54 years, whichever comes later.
Form
Form D needs to be filled by the account holder to apply for loan against PPF account by stating the account number and amount of loan applied for and should be signed by the account holder. The PPF account passbook must be enclosed with the form and submitted to the bank/post authorities where the PPF account is held.
Amount of Loan
The maximum amount of loan that can be availed is up to 25% of the balance in the PPF account at the end of the second year, immediately preceding the year in which the loan is being applied for. For example, if the account holder is applying for loan in 2022-23, then 25% of the PPF account balance credit as on 31 March 2021 shall be applicable as maximum loan amount.