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Withdraw PF money under the covid-19 facility only if you are in a fix. Photo: Priyanka Parashar/Mint
Withdraw PF money under the covid-19 facility only if you are in a fix. Photo: Priyanka Parashar/Mint

EPF withdrawal: Know the process, tax implication and impact on corpus

  • The process of EPF withdrawal is simple and quick but it can reduce your retirement corpus substantially

As layoffs and pay cuts rise across sectors, a large number of people are dipping into their Employees’ Provident Fund (EPF). According to the latest data from Employees’ Provident Fund Organisation (EPFO), since 1 April more than 5.5 million salaried workers have withdrawn money from their PF accounts.

Of the total withdrawals since April, nearly 40% were under the special withdrawal facility provided due to the covid-19 crisis. Under this facility, employees are allowed to withdraw up to 75% of the outstanding balance in their PF accounts or three months’ basic plus dearness allowance, whichever is lower.

For example, if you have a balance of 1 lakh in your PF account and your basic wage plus dearness allowance is 20,000 per month, you will be eligible to withdraw only up to 60,000.

The government introduced the facility in March to offer relief to people facing liquidity crisis amid the lockdown.

If you are planning to go for it, here are some details about the tax implication on withdrawal, how it will impact your retirement savings and the withdrawal process.

Tax implications

Normally if you withdraw from EPF before the completion of five continuous years of service, the amount withdrawn is taxable in your hands. However, EPFO has clarified that withdrawal or advance taken under covid, even before the completion of five years of continuous service, will not be taxable.

“It has to be noted that it (withdrawal from EPF under covid) is like a non-refundable advance to EPF members. Hence, there shall be no tax implications as no income tax is applicable on any advance availed under the EPF Scheme. Consequently, no tax shall be deducted under Section 192A of the Income-tax Act by the EPF authorities on such advance facility availed by EPF members to fight covid-19 pandemic," said Naveen Wadhwa, deputy general manager, Taxmann.

Impact on retirement savings

EPF is one of the most preferred retirement savings products due to multiple reasons. Shweta Jain, founder and CEO, Investography, a financial planning firm, said, “EPF is usually the single largest asset people have when they retire. That is due to multiple reasons. We start (investing in EPF) with our first pay cheque, we keep increasing the contribution as our salary increases, and the returns are good."

One should go for EPF withdrawals as a last resort as it can impact the retirement savings corpus. Back-of-the-envelope calculations show that if your retirement is 30 years away and you withdraw 1 lakh from your EPF account now, your retirement corpus will come down by approximately 11.55 lakh, assuming that EPF continues to give an interest rate of 8.5% per annum (the rate for FY20) during this period.

“For people rushing to withdraw their PFs today, I have just one advice, don’t withdraw PF money until it’s an absolute necessity," said Jain.

The process

The EPFO is processing the covid-19 claims on a priority basis. It is generally settled in three days as per an EPFO statement released along with the FAQs (frequently asked questions) on 26 April.

You can file the claim online if your Universal Account Number (UAN) is linked with Aadhaar and the KYC of your bank account and your mobile number are seeded with UAN. If it is not, you can do so online.

You can file the claim using the following steps.

1) Login to your UAN account by clicking here

2) Go to Online Services>>Claim

3) Enter the last four digits of your bank account and verify

4) Click on “Proceed for Online Claim"

5) Select PF Advance (Form 31) from the drop-down menu

6) Select purpose as “Outbreak of pandemic (COVID-19)" from the drop-down menu

7) Enter the required amount and upload the scanned copy of the cheque and enter your address

8) Click on “Get Aadhaar OTP"

9) Enter the OTP received on Aadhaar-linked mobile number

10) Claim is submitted

Withdraw PF money under the covid facility only if you are in a fix.

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