Dipping into PF

It has been a long standing trend among provident fund subscribes to make premature withdrawals to meet near term financial goals like getting their children educated, married or sometimes even to buy a house. Subscribers have used smart techniques to avail the withdrawal by using the available loopholes to do so without any tax implications. Realising a need, the labour ministry has gone to make the entire process simple, at least when it comes to using the PF money to buy a house.

In a move that will benefit scores of EPF account holders, members will now be able to withdraw 90 per cent of their EPF balance to buy their dream home and also pay the EMI through the PF account. The change in stance to allow subscribers to direct EMI payments from their PF account was made possible after the EPFO amended the scheme by inserting a new paragraph—68BD to the Employees' Provident Funds (EPF) Scheme, 1952, to enable a subscriber to make down payment to buy homes and pay EMIs through the EPF account.

Under this new provision, EPF subscribers who are members of a co-operative or housing society with at least 10 members can withdraw up to 90 per cent from the fund for purchase of a house or flat or construction of a house and acquisition of the site for the same. This is one more step towards enabling every Indian to own a house as part of the overall housing for all drive by the government. Technically, this scheme stands amended as the labour ministry had issued a notification for the purpose.

There are however, a few conditions that subscribers need to meet to avail of this benefit—first, they should be members in the scheme and have contributed to the fund for at least three years. Next, the scheme is available only once during the lifetime of the members, which means one cannot go in for a second home under this option. Lastly, the rule applies to all those who together with their subscriber spouse have at least Rs 20,000 in their accounts.

However, with this move, the sole purpose of forced retirement savings gets farcical. In the absence of any social security, it is extremely unfortunate that the government is encouraging subscribers in the provident fund to use the corpus to fund their current financial goals, instead of making them realise the importance of saving for their retirement. For smart taxpayers, the move could just be a way to get double tax benefit—first you claim deductions on PF contributions, and later you claim tax deduction towards repayment of the loan through the same contributions. 

olmdesk@outlookindia.com