Covid-19 or Coronavirus pandemic has hit the world’s economy hard and may result in a hole in the pockets of many. The Indian economy is seeing a downfall as the ongoing pandemic has impacted the growth of almost every sector. Almost every industry sector has seen a fall in their sales and revenue. India’s GDP growth has fallen to 4.7% in the third quarter of 2020. In such times people may need extra liquidity which can be obtained from ‘emergency funds’. One such is the Employee Provident Fund. 

As part of its relief measures, the Indian government announced on March 26, 2020, that an individual can withdraw a certain amount from their Employees' Provident Fund (EPF) account if he/she is facing financial problems due to the coronavirus-related lockdown. The request for withdrawal under the new pandemic rules of the pension fund will be honoured within three days.

What is EPF?

Employee Provident Fund (EPF) is a fund wherein the employees, during their duration of employment, contribute 12% of their monthly salary to accumulate funds for their retirement. The same amount is also contributed by the employer to the employee’s account. This amount automatically gets deducted from the employee’s monthly salary and is transferred to the EPF account. The main purpose of investing in EPF accounts is to gather a corpus for the employee’s retirement. However, the EPFO allows the investors of the fund to withdraw a part of this corpus under special circumstances such as a child’s education, daughter’s wedding, or any medical emergency.

EPF Withdrawal Limit

If you are facing a financial crunch due to the Coronavirus Disease’s (COVID-19) economic impact, you can now use your employees’ provident fund (EPF) corpus to survive the crisis. After Finance Minister Nirmala Sitharaman’s announcement on March 26 permitting such withdrawals, the Employees’ Provident Fund Organisation (EPFO) has now operationalised the process for facilitating this withdrawal. It is termed ‘non-refundable advance’ in official parlance.

You can withdraw up to 75 percent of your EPF account balance or three months’ basic wages or the amount that you need, whichever is lower. Employers match employees’ PF contributions every month. Out of the employers’ contribution, 8.33 percent is directed towards EPS (employees’ pension scheme). The EPF balance at any point in time is the sum of employers’ and employees’ EPF contributions plus the interest accrued over time. Put simply, your accumulated PF corpus.

For instance, if your EPF balance on March 31, 2020, is Rs. 10 lakhs and your basic salary is Rs. 50,000 per month, you will be able to withdraw only Rs. 1.5 lakh. On the other hand, if your balance is Rs. 2 lakhs and basic monthly salary amounts to Rs. 51,000, you can still withdraw the same amount.

EPF Withdrawal Process

Any member of the EPFO employed in an organisation affected by the epidemic or pandemic can make an application to the Commissioner seeking an advance from their EPF account. The withdrawal can be made either by:

  • Submitting a hard copy of the application or

  • Applying online

Process for Online Application:

An online application can be submitted as below:

  • A member with a UAN (Universal Account Number) should log in to the EPFO’s website.

  • Under the tab ‘Online Services’, choose the option ‘Claim (Form-31, 19 and 10C)’

  • The next screen will display the details of the member and ask for ‘last 4 Digit’ of the member’s bank account number

  • After verification, the member should click on ‘Proceed for Online Claim’

  • The member has to apply for ‘PF Advance (Form 31)’

  • The purpose of the advance should be indicated as ‘Outbreak of pandemic (COVID-19)’

  • The member should mention the amount of advance required, provide their address and a scanned copy of bank cheque

  • Request for an Aadhaar OTP to verify

  • Fill the OTP received on the registered mobile number (with Aadhaar authorities)

  • Submit the application

Process for Physical Application:

Employees who have linked their Aadhaar number and bank account with their UAN can submit their claim in the new composite claim form (Aadhaar) with the respective jurisdictional EPFO’s office. The Aadhaar-based form should be self-certified but does not require attestation by the employer.

However, in the case of employees who have not linked their Aadhaar number and bank account with their UAN, the claim has to be made in the new composite claim form (Non-Aadhaar). The form should be self-certified and also requires attestation by the employer. In both the cases, the employee should submit their PAN and a cancelled cheque along with the application for processing the amount into their bank account.

The amount of withdrawal will be directly credited to the member’s bank account. The withdrawal in the form of non-refundable advance is allowed from 28 March 2020.

Tax Implications on EPF Withdrawals

A non-refundable advance withdrawal from your EPF account will not impact an individual’s account in any way. It will continue to operate and earn interest on the accumulated corpus.

  • Because the withdrawal is considered as income of the investor, the funds withdrawn from the EPF account before 5 years of continuous service are fully taxable as per the investor’s applicable tax slab

  • TDS gets deducted if the amount withdrawn is more than Rs. 50,000

  • If the employee furnishes his PAN card at the time of withdrawal, the TDS will be deducted at 10%, which will otherwise be 30%

End Note

As part of the recent EPFO announcements about Covid-19, 75% of the total EPF corpus can be withdrawn after around a month of unemployment has passed. The remaining percentage of 25% is completely transferable and can be done so to a new account. Members of the Employees' Provident Fund Organisation (EPFO) have been allowed to take non-refundable advances from their EPF accounts to fund financial emergencies caused due to the coronavirus-induced lockdown.