Coronavirus (COVID-19) has stealthily spread across the globe and has become one of the deadliest viruses killing thousands of people worldwide. The World Health Organization (WHO) has declared Coronavirus as a pandemic. 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.

Our country is under lockdown to contain the spread of Covid-19. 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 Relief Measures

The EPF Scheme, 1952 offers a grant of advance to members in the event of a disaster or epidemic that has been declared by the government. The advance is intended to help employees meet their financial needs during the lockdown period.

As part of its recent announcement, the Government of India will pay the employer and employee contribution to EPF account of employees for an additional three months from June to August 2020. The benefit is for establishments with up to 100 employees and where 90% of those employees draw a salary of less than Rs. 15,000 per month. The contribution to EPF is reduced to 10% from 12% for non-government organisations.

Employees can obtain an advance from their EPF balance up to three months’ salary or wages plus dearness allowance, or 75% of the balance standing in their account, whichever is less. The advance is non-refundable and the employee need not deposit the money withdrawn back into their EPF account. The withdrawal will provide liquidity in the hands of employees during the COVID-19 lockdown. Employees seeking an advance can make an online application using their login on the EPFO’s website.

Important Q&As on EPF Measures

1. Are all employees eligible to withdraw from their EPF account?

All employees who contribute to EPF can apply for an advance from their EPF accounts. For withdrawal, an employee must have a Universal Account Number (UAN) allotted by EPFO and must link their Aadhaar, PAN and bank account with their UAN.

2. Is there any withdrawal limit from EPF account?

Let’s address this query with the help of an example. Mr X, an employee of a factory with an annual salary of Rs. 7.2 lakhs wants to obtain an advance from his EPF account since the factory is shut down during COVID-19 pandemic. Mr X has a basic salary of Rs 3.6 lakh which comes to Rs. 30,000 per month. Mr X has been in employment for more than two years and his accumulated balance in EPF account stands at Rs. 1 lakh. Here, Mr X can withdraw lower of the below amounts:

  • Rs. 90,000 (Rs 30,000*3): Basic salary for three months

  • Rs. 75,000 (75% of Rs. 1,00,000): 75% of the balance standing in the member’s account.

  • Mr X can withdraw Rs. 75,000 as non-refundable advance from his EPF account

3. What is the EPF withdrawal procedure?

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

Covid-19 or Coronavirus pandemic has hit the world’s economy unexpectedly and may create a financial vacuum for many. In times like these, people are in need to liquidate their ‘emergency funds’. India’s Finance Minister Nirmala Sitharaman announced several financial assistance measures being implemented by the Government of India because of the Coronavirus disease outbreak. One such financial liquidity option is withdrawal from the Employee Provident Fund.