Should You Withdraw From Your PF Account to Pay Your Home Loan Down Payment - Know Here!

09 DECEMBER, 2021

Home loans help you fund your house purchase without exhausting your savings. Hence, before availing a housing loan, make sure to compute the EMI using a home loan calculator so that you opt for an EMI and tenure, keeping your budget in mind.

However, the lender does not finance the entire cost or valuation of house. You need to pay a small amount upfront, which is called down payment. You need to pay at least 15-20% of the property cost as a down payment, as without it, it could be challenging for you to get a home loan.

However, what if you do not have funds for a down payment? Should you let go of your dream home? Certainly not. You can liquidate your investments to arrange funds. Provident Fund is one such investment that people usually prefer to pay the down payment. However, is it the right step to withdraw your PF account for a down payment? Let's find out.

What is a Provident Fund?

Provident fund is a risk-free, government-managed retirement scheme for employees. In this, the employees deposit a part of their salaries in a fund. Similarly, the employer also deposits an equal amount in the same fund. The amount from this fund can be withdrawn as a lump sum after retirement or after the employer leaves the company.

Can PF be Used for Down Payment on a Home Loan?

You might know as a salaried employee that the PF amount is at your disposal, and you can use it at your convenience. If you apply for home loan when buying a house, it could be a good idea to use the PF amount for the same. However, you must know the process of withdrawal and the terms and conditions attached to it. You can withdraw your PF for buying a plot and for constructing or buying a house.

Read Also: How To Apply For Second Home Loan In India

Conditions For Pf Withdrawal For Buying A Plot Or Land

To buy a plot, you must have a PF contribution of minimum 5 years. The withdrawal limit is your basic salary for 24 months and DA. You can withdraw an amount that is equal to the cost of the plot.

Conditions For Pf Withdrawal For Buying Or Constructing A House

To buy a house, your minimum contribution in PF should be at least 5 years. The withdrawal limit is 36 months of basic salary with DA. Some of the additional conditions are:

• The maximum amount you can withdraw is the cost of your house. However, if you are buying a property jointly, your co-owner should only be your spouse. The transactions of the house should be done within six months of withdrawal.
• If this withdrawal is for constructing a house, the house construction should start within six months and should be completed within 12 months from the time you withdrew the last instalment.

While you decide to withdraw the PF for a home loan down payment, you must know its benefits and disadvantages. It might not be a wise decision to use PF amount if you are earning high returns on them. You can then instead use fixed deposits for a down payment. In addition, you must ensure to check the tax implications of withdrawing the PF amount. You must weigh your options and then make an informed decision.

What Are the EPF Withdrawal Rules in India?

EPFO has introduced new rules regarding withdrawal from Provident Fund accounts to provide easier access to funds for subscribers facing financial difficulties due to the pandemic. The revised regulations allow PF withdrawal home account holders to withdraw a non-refundable deposit equivalent to three months of their basic salary plus dearness allowance or 75% of the net balance in their PF/EPF account, whichever is lower. Online a loan against pf claim will be settled within three working days, while offline claims can take up to 20 days for settlement. These new rules aim to provide timely and hassle-free access to a PF withdrawal for home loan for those in need.

How To Withdraw Pf For A Home Purchase?

Under Section 68BC of the EPF Scheme, cooperative and registered housing society members with at least ten members can withdraw their EPF funds. Non-members can also withdraw funds for property purchases with critical documents like a PF contribution certificate, composite claim forms, and an EMI payment authorization letter for home loans. Link your Aadhaar with UAN and fill out the online pf withdrawal for home purchase form with supporting documents to get the funds credited in 15 days.

How to Apply for PF withdrawal for Home Loan Online?

To withdraw Provident Fund online, update and authenticate your Aadhaar number on the UAN portal and link it to the EPF account. Fill out the online pf home loan form with accurate bank account details and submit it. The amount will be credited to your account within 15 days.

For offline withdrawal, download Form-19 from the EPFO website or your previous organization, fill in the details, attach a canceled cheque, and submit it to your employer. They will attest it and send it to the regional PF office for processing. The amount will be directly credited to your account. However, this process may take longer than online withdrawal, which also allows for easy application tracking.

Tax Implications of PF Withdrawal for Home Purchase

Withdrawals from the PF account are tax-exempt if the employee has completed five years of service under section 10(12) of the Income Tax Act, 1961. Interest on EPF exceeding Rs 2.5 lakh is taxable as ‘Income from Other Sources.’ If only the employee contributes to the PF and not the employer, the threshold will increase to Rs 5 lakh. Before withdrawing, consider tax exemption benefits and invest in a property with the potential for faster appreciation than the PF amount.