Withdrawing funds from a PF account could help ease short-term cash-flow issues but it could also impact the retirement goals of an individual.
The money in your provident fund (PF) account is primarily meant for retirement; thus, it’s usually unadvisable to touch this corpus for any other purpose. That said, the Employees’ Provident Fund Organisation (EPFO) does allow withdrawing from PF funds before retirement for specific purposes like buying or renovating a house, medical emergencies, etc. However, the retirement fund body recently announced its subscribers can now avail a second non-refundable advance (the first one announced in March 2020) from their PF account in the wake of the deadly second wave of the Covid-19 pandemic and mucormycosis being declared an epidemic.
The fact remains that withdrawing funds from a PF account could help ease short-term cash-flow issues but it could also impact the retirement goals of an individual. So, it’s vital to make a careful and informed decision. Here are a few pointers that you might find helpful in this regard.
In March 2020, the EPFO, under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), allowed its subscribers to make a non-refundable advance from their PF accounts to meet any Covid-19 related financial requirements. Subscribers were permitted to withdraw up to 75 per cent of the balance shown as credit in their EPF account or an amount up to three months of basic wages plus DA, whichever lower. On May 31, 2021, the EPFO made another announcement allowing subscribers to make a second non-refundable advance to “accord top priority to COVID-19 claims”. The retirement fund body also stated, “Members who have already availed the first COVID-19 advance can now opt for a second advance also. The provision and process for withdrawal of second Covid-19 advance is same as in the case of first advance”.
How to make a Covid-19 withdrawal claim from a PF account?
If you have decided to make this claim online, you first need to ensure your Universal Account Number (UAN) is linked with your Aadhaar, PAN and bank account. You then need to log in to your EPF account with your UAN and password, and then click on ‘Online Services’ and select the ‘Claim (Form-31, 19 and 10C)’ option from the drop-down. You then need to verify your bank account number by entering the last four digits of your account, confirm ‘Terms & Conditions’, click on ‘Proceed Claim Online’, select ‘PF Advance (Form 31)’ and specify the reason for withdrawal, the amount needed and your complete address. Here you will need to fill in your bank account details and upload a scanned copy of a cheque or passbook, following which you need to click on ‘Send OTP’, and enter the OTP received on your registered mobile number. Your claim will now get registered and the withdrawal fund will get transferred to your account in a few days following authentication from your employer.
Keep in mind
Before you start the claim process, you’ll be well-advised to carefully evaluate the impact of withdrawing your PF funds before retirement. The EPF is one of the highest interest-bearing investment instruments available in the country. The fund comes with a sovereign backing – hence it is extremely low-risk — and is currently offering an interest rate of 8.5 per cent p.a. which is much higher than small savings schemes and bank fixed deposits. Moreover, the interest on EPF is tax-exempt (subject to conditions), whereas interest on regular bank FDs is subject to taxes as per the income tax slab rate applicable to the investor.
The point being, if you’re going through financial stress due to the second wave of the pandemic, you should ideally explore other options to arrange necessary funds before withdrawing from your PF account. However, if there isn’t any other feasible alternative, you can go ahead and avail of the facility. But even then you should aim to take steps to minimise the adverse impact of this claim on your retirement goals as soon as your finances stabilise. The easiest way would be to increase your Voluntary Provident Fund (VPF) contributions to replenish the shortfall. You can also choose to invest in instruments like top-rated equity and debt fund SIPs, the National Pension Scheme (NPS), and equity-linked savings schemes or bank deposits according to your returns expectations, risk tolerance and liquidity requirements to get back on track when it comes to your retirement goals.
The author is the CEO at BankBazaar.com. Views expressed are that of the author.
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