How to Use EPF for Home Loan?

by Ashiana / June 1, 2024 / 2315 views/ Reading Time: 4 minutes

What is a Provident Fund?

A risk-free, government-managed retirement plan for workers is called a provident fund. In an employee’s provident fund (EPF) scheme, the employees contribute a portion of their pay to this government-supported and secure fund. The employer contributes the same amount to the fund in a similar manner. After retirement or when the employee leaves the company, the entire amount in this fund may be withdrawn.

What is EPF?

The Employee Provident Fund, or EPF for short, is an investment fund established for long-term growth. The contributions from businesses, employees, and occasionally the government attributed to this. As it is managed by the Employees’ Provident Fund Organization (EPFO), EPF ensures that this social security plan will offer protection and safety to all subscribed employees, especially at the time of their retirement.

What does UAN mean?

Universal Account Number or UAN is a 12-digit unique number allotted to each existing contributing employee to the EPF scheme. EPFO passbook, details of contributions, and amount in an EPF account are easily achieved through UAN login. Even if an employee changes employers, their UAN remains constant. In addition to this, the employee has to link their UAN with the UID number. For UAN activation at home, one must complete it online by going to the UAN activation portal and the EPF member portal. A PF balance check with a UAN number can be using the registered number.

How to Use The EPF Amount To Buy A House

Professionals receiving a salary have to work for five years before they can withdraw their EPF balance. Depending on the goal, they can withdraw a certain sum. When buying a house, they can deduct the cost of the plot if it is less than 24 months’ worth of basic pay plus the Dearness Allowance (DA) when purchasing land. They can deduct the construction costs, the real cost of the property, or 36 months’ basic pay plus DA, whichever is less, when purchasing or building a home.

Repayment of Home Loan Using PF Money

In the case of salaried employees with PF accounts, withdrawals for repayment of home loans from the provident fund are allowed. They would have to be PF contributors for at least ten years. The total withdrawal cannot exceed 36 months of the base income plus the Dearness Allowance (DA). This facility can be availed by all customers who have taken a home loan from a registered bank or non-banking financial organization. This service is not available for private loans.

Conditions for PF withdrawal for a Home Loan

To withdraw from your EPF for home loan purposes, you must meet the following conditions:

Eligibility

To be eligible for an EPF withdrawal for a home loan, one must have served continuously for at least three years. The total EPF balance includes interest-bearing contributions from both your company and yourself.

Property Ownership

A house may only be bought or built with EPF money if it is jointly owned by you, your spouse, or both of you. If you buy a property only in the name of someone other than your spouse, you cannot withdraw EPF funds.

Withdrawal Limit

Up to 90% of your EPF balance may be taken out for buying or building a home, including any necessary land costs. 10% of the total must remain in your EPF account.

Minimum Service Period

EPF withdrawals for a house loan are generally permitted after five years of service. However, this time frame may be shortened to three years in exceptional situations, such as when a person changes occupations.

Property Ownership Period

If you have withdrawn from an EPF account for a home loan, then ownership of the property funded through the sum should be held for at least five years from the date of such withdrawal. This withdrawn sum will be treated as taxable income, and you’ll have to foot the bill if you sell your property within this time period.

Points to keep in mind

For buyers who are part of a cooperative or registered housing society, members of cooperative housing societies or registered housing societies with ten or more members may withdraw their EPF balance under Section 68BC of the EPF Scheme.

Salaried employees who are not members may also take out cash on their own to buy real estate.

Essential Records

Proper documentation is mandatory for the upkeep, and the same must be shared with EPFO, including the composite claim forms and the commissioner’s certificate of PF contributions.

A letter of authorization for Equated Monthly Instalments (EMI) from the PF to be paid on house loans is also a requirement to be shared.

Process of Withdrawing PF Online

To link your Aadhaar and UAN numbers, go to the official EPFO website.
Complete the PF withdrawal form, providing bank account information and supporting documentation.
After careful examination and consideration of eligibility, the funds will be credited to the connected bank account within 15 days.

Summary

Employee Provident Fund: Under this retirement plan, both the employee and the employer contribute with a special account number for management, i.e. Universal Account Number (UAN). For home purchases or construction, employees can withdraw their EPF after five years of service, subject to a limit of 24 months’ basic salary plus DA for land and 36 months’ pay for homes. For home loan repayment, one is allowed to withdraw the same after ten years of contributing with an upper ceiling limit of up to 36 months’ basic salary plus DA when it is funded by a registered financial institution. You can also read more about Reduction of Lending Rates on Home Loans here.

Quick Words: You must have three years of continuous service and own the property jointly with your spouse. In the case of withdrawals, a minimum of 10% will have to be withdrawn from the EPF balance for the property to enjoy tax-free status after five years. For online withdrawals, members need to link their Aadhaar with UAN on the EPFO portal and submit the requisite forms along with bank details. The credit of funds takes 15 days after verification.

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Category: Real Estate, Investment,

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