How to Take a Loan Against PF
What is a Loan Against PF?
Everyone faces a time when they will require funds to deal with an emergency. But apart from borrowing it from a bank, one can also take a loan against one’s PF. There is a provision for partial withdrawals during the PF tenure to assist employees in financially challenging times. Advances against EPF reserves are not typical loans, so you do not have to pay interest on them. However, the loan against the provident fund is available for the purposes listed below:
Purchase or construction of House
Purchasing a plot,
Home loan repayment, and
Renovation of Home.
How to Get a Loan Against PF
To avail a loan against EPF, employees must apply for premature withdrawals. One can execute the entire process online on the EPFO portal:
To begin with, account holders must ensure that their Know Your Customer (KYC) information is linked to their Universal Account Number (UAN).
- Log into the portal using your UAN number.
- Fill out and submit Form 31, an advance form, and other required documents.
- The EPFO thoroughly reviews the application to ensure that the reasons are valid. On successful verification, the employee can take a loan against PF.
After knowing about the withdrawal rules, you should know how to apply for an EPF loan.
- All you have to do is submit Form 31(one can get Form 31 from the EPFO website by entering their 12-digit UAN number) along with the other required documents to your organisation, which will then forward it to EPFO for validation.
- The following information needs to be entered on the form 31 – account number of the EPF account from which you would like to receive the advance, bank account number to which you want the funds credited, salary information.
EPF Loan Eligibility Calculation
The eligibility to avail of an advance from your EPF account depends on the purpose behind the withdrawal. Which are summarised in the following table:
|Reason for Withdrawal||Limit of Withdrawal||Minimum number of years in service||Other terms and conditions|
|Education||Up to 50% of employee’s share of contribution to EPF.||Seven years||For the education of children after class 10th.|
|Marriage||Up to 50% of employee’s share of contribution to EPF.||Seven years||For his marriage or the marriage of daughter/ son/ brother/ sister.|
|Purchase of home or plot||For home: up to 36 times of monthly wage plus dearness Allowance (a component of the salary).||Five years.||The land must be in the name of the employee or spouse or jointly owned.|
|Medical treatment||six times wages plus dearness allowance||N/A||For his treatment or spouse, daughter, son, father, or mother’s treatment. The patient should be hospitalised for more than a month.|
In case of cancer, paralysis, TB, leprosy, mental derangement, or heart ailment, advance can be availed without hospitalisation.
|Home loan payment||Up to a maximum of 90 % from employee and employer contributions in EPF||10 years.||The land must be in the name of the employee or spouse or jointly owned.|
Related documents to the housing loan should be presented.
The accumulation in the employee’s PF account (or with the spouse), including the interest, should be more than Rs. 20,000.
|Calamity||Up to 50% of the employee share.||N/A||Employer will have to provide the certificates of damage.|
|Addition / alternation of house||12 times of your wages||five years.||The land must be in the name of the employee/spouse or jointly owned.|
|Lockout||Equal to your unpaid wages||N/A||Employers must not be getting a salary for the last two months, or the company must be closed for at least 15 days.|
|Withdrawal before retirement||Up to 90% of accumulated balance with interest||57 years||For self only.|
NOTE: The following are some additional requirements that must be met to file online EPF withdrawal claims.
- You have activated the Universal Account Number (UAN).
- The mobile number used to activate the UAN must be active to receive OTP (one-time password).
- Your Aadhaar Card information must exist in the EPFO database. Further, when filing the claim, you should have used UIDAI’s OTP-based facility for eKYC verification.
.The rules for loans against PF accounts vary based on the reasons for which one is making partial withdrawals. Here’s a quick rundown:
- If one is withdrawing to get married or fund the marriage of a sibling or child, one can withdraw up to 50% of the PF contribution. The account holder must have been in service for at least seven years.
- In the case of an illness suffered by the account holder, their parents, spouse, or children, one can withdraw the total contribution by one’s employee, or six months of Dearness Allowance (DA) and basic salary, based on which one is lower.
- If you are planning to use the fund to buy a new home or construct a home, you need to have been in service for at least five years. The property must be in the account holder’s name, spouse, or joint ownership. The account holder can withdraw the total contribution, or up to 36 times the Dearness Allowance (DA) and the salary of the employee, whichever is lower.
- Can withdraw up to 50% of the employee’s contribution for a child’s education. The employee must have completed seven years of service before up to three withdrawals can be made.
- Employees can also withdraw to buy land. It must be in the account holder’s name, spouse, or joint ownership. The amount can be the total contribution made so far or 24 times the DA and salary of the employee, whichever is lower.
How to Check Status of PF Loans.
You can check the status of your EPF advance claim by following these steps:
- Go to the EPFO’s official website and click on the “Services” tab.
- Select “For Employees” from the drop-down menu.
- Then go to the “Services” section and select “Know Your Claim Status.”
- To log in, enter your UAN and password.
- To check the status of your EPF claim, enter your EPF account number, establishment code, and the state of your PF office.
One of the most appealing aspects of the EPF is that if the contributed amount is withdrawn after five years of continuous employment or upon retirement, the entire amount and interest are tax-free compared to other taxed instruments such as fixed deposits; this feature helps beat inflation. Which makes EPF a valuable savings tool. As a result, it is advisable not to borrow against your PF balance and instead use it to save for the future. Budgeting for all other major life events and having medical health insurance in an emergency is preferable.
Is a loan against EPF rules the same as a loan against PPF?
No, they are two different types of instruments. Hence, the rules vary.
How much interest must I pay when taking a loan against PF?
You don’t have to pay any interest since it is more of an advance than a traditional loan, which can come with an exorbitant interest rate. There is also no stress in paying back the loan against PF because, technically, it is an advance and not an actual loan.
Can I make a complete withdrawal in case of a major illness?
Yes, one can withdraw the total contribution or six months of Dearness Allowance and basic salary, based on which one is lower. One can apply for a loan against PF in cases where the person affected by illness is a parent or child.
How do I take a loan against my PF?
You will need to make an official application on the EPFO portal, which undergoes a verification process before it can be accepted.
How long will it take for the verification process?
It can take up to 20 days. Hence, it is advisable not to depend on a loan against PF in medical emergencies. However, it can still be an option if it is a terminal illness or a condition that needs ongoing care.