Provident Fund (PF) amount is a corpus that is built gradually, so as to ensure that an individual has enough money when they retire. A part of a person’s salary is deducted and saved in a PF account, set up by their organization. This doesn’t let the person indulge in wasteful expenditures, and hence saves precious money for a time of need.
However, the picture isn’t as glossy as it seems. Just like all well-meaning laws, even this has many unintended consequences. For starters, the law doesn’t allow you to withdraw large chunks of your PF money until and unless there's a case of dire emergency. Now, this is subjective and depends on the policymakers as to what they feel is a genuine emergency and what is not.
(Image Courtesy: News 24)
Things become tricky in a situation where a person wants to purchase a house. You would assume that he would turn towards his PF for funds. However, it isn’t as simple as that as many things have to be kept in mind including many legalities and formalities. So, we have made an attempt to paint a clearer picture of as to how you can use your PF to buy a new home and if you should use it at all to fund the same.
According to the new rules, EPFO (Employees' Provident Fund Organization) has allowed members, i.e. the contributory employees of the PF scheme, to use 90 percent of EPF accumulations to make down payments to buy houses and use their accounts for paying EMIs of home loans. However, one essential requirement for a PF member is that to withdraw PF money for the purchase of real estate they have to be a member of a housing society having at least ten members in support.
No Secondary Market Deals
EPFO rules do not encourage secondary market or resale transactions of real estate properties. The organization will make payments directly to the co-operative society, state government, central government, or any housing agency under any housing scheme, or any promoter or builder, in one or more installments, as the case maybe.
How Much Money Can You Withdraw?
As of now, the rules say that a PF member can withdraw 90% of the total PF that they have or the cost of acquisition of the property; whichever is less. The balance will include members own share of contribution plus interest and employer's share of contribution plus interest. In case the member doesn’t get an allotment of a house, he is compelled to return the money to the EPFO within the next 30 days.
Making EMI Payments Using PF
The money from PF can be used to pay full or part EMI for the loan in a member's name after the correct details are filled in a prescribed format. There is also a new option in the new rules that allow repaying of pending installments on a monthly basis. EPFO will then pay the EMI to the bank, housing agency, and the government.
How To Apply?
Okay, so you’ve now made the decision to go forward and use your PF in the purchase of your home. So here’s a rundown of the things that you need to apply for the same. A PF member can apply individually or jointly through housing society in a prescribed format (Annexure-I) to get a certificate from the EPFO.
After the EPFO has arrived at the cost of the EMI, they then issue a certificate (Annexure-II) showing the remaining balance and the last three month’s deposit in the account.
If a person wishes to use the PF money to meet EMIs, then in addition to Annexure-I, they have to fill the Annexure-III as well.
This form carries the details such as PF amount, PF, and loan account number, lender name, address, etc. One has to get this form authorized from the lender i.e. branch manager of the bank that has sanctioned the loan. Once approved, EPFO will start transferring EMI's online to the lender's account.
What If Employee Leaves His Job?
The terms of the EPFO stand pretty clear. It will under no circumstance be held liable to pay default of payments to the lender. If an employee leaves service, it will be his responsibility to repay the loan. In case the PF fund gets over, then the employee has to arrange funds to pay the installments from his own end. The EPFO shall not grant any more money.
Remember, your PF is meant to take to care of your life post-retirement. Depleting it before that might jeopardize your life after work. Therefore, utmost caution must be applied before dipping into it. It is not advisable to depend too much on your PF amount to purchase a new house. However, for people considering using it for the down payment amount can still go ahead. Also, if you have a post-retirement plan in place, that doesn’t depend on your PF savings, then you can use it to purchase the house you always wanted.
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(Feature Image Courtesy: Central Government Employees News)