The Union labour ministry recently amended the employees' provident fund (EPF) scheme to allow members to make a partial withdrawal, or 'advance' withdrawal, from their corpus to help tide over hardship caused by the coronavirus lockdown.
According to the new EPF rule, subscribers can withdraw 75 percent of balance or three months' wages, whichever is lower, as non-refundable advance from their account.
According to the notification, employees working in establishments and factories across India, who are members of the EPF Scheme, 1952, are eligible for the benefits of non-refundable advance.
The scenario under which one should withdraw from the PF account
As per the rule, subscribers who are facing any financial exigency due to the pandemic and subsequent lockdown may go for EPF withdrawal.
"For individuals who are members of the provident fund, the relaxation on withdrawal conditions under the EPF Scheme can help them tide over short-term cash crunch, ” Richa Mohanty Rao, partner, Cyril Amarchand Mangaldas said. This cash crunch may be the result of a delayed salary in the wake of the ongoing 21-day lockdown in the country.
Employees, facing liquidity issues, can also withdraw PF money and use it as an emergency fund to meet pressing expenses. The same can be done in order to pay a debt, credit card dues or loan EMIs.
In the wake of the coronavirus pandemic, regular flow of income may have been interrupted for many employees. They can use the non-refundable advance of their PF balances to tide over their liquidity issues.
Also read: How to withdraw EPF money citing COVID-19 outbreak
partial withdrawal, or ‘advance withdrawal' is also allowed from a PF corpus under a number of conditions such as purchase or construction of house, repayment of a loan, non-receipt of wage for two months, marriage of self/daughter/son/brother, for medical treatment of family members, among others.
However, experts warn that withdrawing from the EPF corpus should be the last resort. EPF works on compounding and the corpus, if allowed to build up, can reap huge benefits in the future.
“Most of us have generally a career spanning 40 years. So if the PF is deducted and accumulated through the 40 years, one can calculate the compounding effect," said Lakshmi Murthy, CPO, ITM Group of Institutions.The interest on EPF contributions is exempt from tax up to certain limits and consequently it is one of the best debt investment options available at present.