If you’re a salaried employee, then you know that the take-home pay is far less than the overall salary package. A significant percentage of your salary is deducted every month to invest in the EPF (Employee Provident Fund), ESI, and other schemes.
While not having the entire salary at hand may feel unfair at the outset, contributions to the EPF scheme play a crucial role in helping employees build their retirement corpus. The EPF is a long-term investment scheme, and both employees and employers contribute to it. 12% of the employee's basic salary is invested in the EPF scheme every month. The employer, too, makes a similar contribution to the employee's account every month.
The EPF acts as a safety net, helping employees build their retirement corpus during their working years. The funds accumulated in the EPF scheme act as a replacement for the salary, when employees retire from work.
While employees are not permitted to withdraw the accumulated funds in EPF before retirement, there are certain exceptions where they can make partial withdrawals. These partial and premature withdrawals are termed as EPF loans.
Here, in this guide, let’s take a look at when and how you can take a loan from your accumulated EPF fund.
What is the EPF loan?
Though named as loans, EPF loans are technically not loans. Unlike regular loans, you are not borrowing from a third-party lender. Instead, you’re dipping into your accumulated funds to make partial withdrawals. Consider it as an advance withdrawal from your account.
Differences between an EPF Loan and a Regular Loan
Regular Bank/NBFC Loan
|What is it?||Prematurely withdrawing a partial sum from your accumulated EPF fund.||
Borrowing from a third-party.
|What are you doing?||Withdrawing funds from your EPF account.||
Borrowing from a bank/NBFC.
|Interest||No. Since you're withdrawing from the funds you have accumulated, you do not have to pay any interest.||
Yes. It depends on the type of loan and lender.
|Repayment||Since you’re withdrawing from your funds, you do not have to repay the amount.||
Yes. Repayment is generally in the form of EMIs for a specific tenure.
When can you take a loan on EPF?
The EPFO (Employees' Provident Fund Organisation – the body responsible for handling all EPF accounts) allows loans on EPF account only for certain emergency situations. The withdrawn amount is granted as a personal loan that you can use to meet your emergency cash requirements.
However, before the loan is sanctioned, the EPFO first verifies whether the provided reason is justifiable. The withdrawal is authorized only after detailed scrutiny of the reason.
Here are the situations where you can avail a loan from your EPF account:
Marriage – You can withdraw from your EPF account to meet the marriage expenses of your son, daughter, or self.
Education – The EPFO also permits withdrawals for education expenses. You can apply for an EPF loan to meet the education expenses of your children, siblings, or self.
Medical Treatment – EPF loans are permitted for medical emergencies for your spouse, children, or parents. However, note that withdrawals are allowed only for serious illnesses.
Home Loan Payment – The EPFO may grant your request for partial withdrawal for paying home loan payments in specific scenarios.
Natural Calamity – You can apply for a partial withdrawal from your EPF account if you face significant losses due to a natural calamity.
House Alteration/Repairs – EPF loans are sanctioned for renovating, repairing, or extending your current residence.
Purchase of Plot/Home – EPF loans are allowed for big-ticket purchases like the purchase of home or plots.
Withdrawal before Retirement – According to EPF rules, an employee is allowed to withdraw a majority of the accumulated fund before one year of retirement.
Lockout – During unexpected calamities, the employee may stop receiving the salary from the employer. In such cases, the EPFO permits partial withdrawals.
*Update: In view of the ongoing Covid-19 pandemic, the EPFO permits all account holders to withdraw 3 months of their basic pay and dearness allowance or up to 75% of the balance in the account (whichever is lesser).
EPF Loan Eligibility for Various Reasons
The amount you can withdraw depends on the reason for withdrawal. Here are the limits of withdrawal for various reasons.
|Reason for Withdrawal||Limit of Withdrawals||Minimum Number of Years in Service||
Maximum Frequency for using this Reason
|Education||Up to 50% of the accumulated funds||7 years||Up to 3 times|
|Marriage||Up to 50% of the employee’s share||7 years||Up to 3 times|
|Purchase of plot/home||For home: up to 36 times the monthly wage of the employee + dearness allowance
For plot: up to 24 times the monthly wage + dearness allowance of the employee
|5 years||Only once|
|Medical Treatment||6 times the monthly wage of the employee + dearness allowance||Not Applicable||No limit|
|Home Loan Repayment||Up to 90% of the employee + employer's contribution to EPF||10 years||Only once|
|Home Renovation/Alteration||12 times the wage of the employee||5 years||Only once|
|Natural Calamity||Up to 50% of the employee’s share in EPF||Not Applicable||No limit|
|Lockout||The withdrawal amount is equal to the unpaid wages||Not Applicable||No limit|
|Withdrawal before Retirement||Up to 90% of the accumulated balance in the fund along with interest||At the age of 57 years or above||Only once|
How to apply for an EPF loan online?
Step by step Procedure to File an Online Claim for EPF Loans
Applying for an EPF loan is quite easy, and the entire process can be completed online with just a few clicks.
Visit the member portal of EPFO and login to your account using your UAN and password.
Click on the “Online Services” tab and select “Claim Form – 31, 19 &10C.”
Your details will be displayed on the screen. Enter the last four digits of the bank account you have registered with EPF and click on “Verify.” Give your approval by clicking on “Yes.”
Next, select "Proceed for Online Claims," and choose the type of claim. You will be prompted to enter the reason for the request, the amount you wish to withdraw, and your address.
Once your loan approval is sanctioned by the EPFO, it is credited directly to your bank account. Generally, it takes around 15 to 20 days for the amount to reach you from the day you submit the online request.
Few Points to Keep in Mind while Applying for a Loan from EPF Online
To be eligible for online claims, the account holder must have activated the UAN (Universal Account Number). The mobile number should be registered with UAN.
The Aadhaar details of the account holder must be entered in the EPFO database.
Bank account details and PAN numbers must also be linked to the EPFO database.
How to apply for an EPF loan offline?
If you’re not comfortable applying for an EPF loan online, you can apply offline. Here are the steps to follow:
Download Form 31 (EPF Advance Form) from the EPFO website.
Fill up the details – reason for withdrawal, withdrawal amount, bank account number, etc. and submit the form to the accounts department of the organisation you're working for.
The employer then forwards your application to the EPFO.
Once the request is sanctioned, the amount is debited from your EPF account and credited in your bank account.
Exercise Due Caution while applying for an EPF Loan
There's no doubt that an EPF advance comes in quite handy, helping you meet your emergency cash requirements in various situations. It's easy to avail and doesn't incur huge interests like regular personal loans. Also, you don't have to repay the amount you withdraw, since it isn't technically a loan.
However, note that the primary purpose of the EPF investment is to build your retirement corpus. Frequent withdrawals for non-emergency purposes could deplete your retirement savings, leaving you without sufficient funds to fall back on, after you retire.
So, practice due to caution and use an EPF loan only for emergency situations.