The Employees Provident Fund Organization (EPFO) has made a significant alteration to the method members could withdraw their provident fund (PF) balance. The new system would allow members to withdraw 100% of their “eligible balance,” which now consists of the employee’s contribution and also in many cases, the employer’s contribution along with interest. However, on the other hand, a very important protective step has been taken: At least 25% of the total corpus will be kept in the account (i.e., not allowed to be withdrawn) for the purpose of securing long-term retirement savings.
Simplified Service & Withdrawal Criteria
One of the major reforms was the uniformity in service requirements and the simplification of the withdrawal categories. The previous rules had varying service periods (from 1-7 years) depending on the reason for withdrawal; under the new rules, the minimum service period for many partial withdrawals has been shortened to 12 months. In addition, the 13 different grounds for partial withdrawal (like medical treatment, marriage, education, buying a house) have been merged into three general categories: Essential Needs, Housing Needs, and Special Circumstances.
What Members Can Withdraw & When
With regard to partial withdrawals, members can now access a larger portion of their PF earlier in their careers depending on the category. For instance, in case of housing needs, the limit has increased to a maximum of 90% of the account balance, provided certain conditions are met. In the case of unemployment, members may withdraw a major portion of their funds earlier: according to the proposed rules, a maximum of 75% of the balance may be permitted withdrawal after one month of unemployment. The rest will be locked up for longer durations but will eventually become accessible. However, a waiting period of 12 months (for PF) and 36 months (for the pension component under EPS) has been introduced for the majority of cases where full withdrawal is claimed after separation (or final settlement).
What You Should Know & Prepare
If you are an EPFO member, take note of the below:
- Keep your UAN, Aadhaar, bank-account & KYC updated. The possibility of a smooth online withdrawal is highly reliant on this.
- Compute the effect of the compulsory 25% retention before you withdraw—though you may get to access the majority of your balance, a part still remains locked for retirement.
- Tax implications—withdrawals before the end of five years of continuous service still run the risk of TDS and tax liability.
- Timelines have changed—if you anticipate immediate full settlement after job loss or job change, the new rules may make you wait up to 12 or 36 months for all funds to be accessible.
- Opt for partial withdrawals under specified categories instead of early draining of the corpus—this may have a negative effect on your long-term retirement corpus growth.
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