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Withdrawing provident fund during personal exigency

Author: Col. Sanjeev Govila(Retd)/Tuesday, June 12, 2018/Categories: Ask the Finapolis

Withdrawing provident fund during personal exigency

I have completed 4 years in my current organisation. As a private sector employee, my monthly deduction towards Employee Provident Fund (EPF) stands at Rs 2,500. My organization also pays similar amount towards EPF. Now, due to some personal exigency, I want to have a partial withdrawal from my EPF account. Kindly guide me whether I can withdraw it without any tax deductions.

Pradeep Ingale, Andheri (E), Mumbai

With 4 years of service, you can primarily withdraw for the purpose of purchase / construction of house / flat and acquisition of site, or meeting a medical exigency.

For the purpose of property, you can withdraw up to 90% of EPF balance (Employee’s share and interest on that + Employer’s share and interest on that) or the cost of the construction of property whichever is less. You are allowed only one withdrawal for this purpose during your entire employment. For buying land or site, the withdrawal amount can be 24 times of your basic wage. Your accumulated EPF balance must be more than Rs 20,000. If your spouse is also an EPF member, then the combined balance will be considered for the eligibility. The amount will be credited to a cooperative society, central government, state government or any housing agency under any housing scheme or any promoter or builders as the case may be, in one or more than one instalments, if the purchase is from any of these organisations.

A subscriber can also take EPF advance for medical treatment of self / family members without submitting any medical certificate. A self-declaration for this purpose is adequate.

Withdrawals after completion of 5 years of continuous service in the EPF are tax free. But all withdrawals made (principal as also the interest) before completion of 5 years of continuous service are subject to tax in the financial year in which the withdrawal has been done as per following stipulations:

• If the employee’s services were terminated or the person is unemployed as a result of ill-health or the withdrawal is for covering medical expenses, withdrawals will not attract tax.

• If the employee has submitted his/her PAN details to the EPFO authorities, 10% TDS (tax deduction at source) will be applicable. That said, if the total PF corpus is less than 30,000 when the employee is making the withdrawal, no tax will be applicable.

My annual salary is Rs 7 lakh. As per my service contract, I should draw Rs 51,000 per month cash-in-hand after all deductions. However, in the last five months, my average cash-in-hand stands at around Rs 31,000 per month due to late fines. Am I liable to pay tax on actual salary or as per my service contract?

Anand Sinha, New Delhi

You are taxed only on the salary that is actually received by you. Hence, if money is deducted from your salary and you get paid lesser, that lesser amount will be considered your actual income for the purpose of income tax.

I am a private sector employee with an annual salary of Rs 8 lakh. My current savings plan includes EPF, bank FD and recurring deposit schemes. I want to invest in mutual fund schemes but don't know which schemes to opt for. I can invest Rs 5,000 per month in mutual fund schemes. Please guide.

Rahul Srivastava, Bangalore.

Rahul, you have opted for very safe investing options so far. That is good but please remember that ‘Safety’ and ‘Returns’ are two opposite ends of the investing scale. If you look for high safety, you will have to compromise on returns, and vice versa. Having invested in safe options so far, I think it is time for you to test equity options too since equity remains the best long term wealth creator. As you have very correctly decided, equity mutual funds are the best way to go about taking equity exposure. Since this will be the first time you will be doing it, taking the Hybrid Funds option (the erstwhile Balanced Equity Funds) is the best way for you initially. I would suggest you to take an almost equal exposure to three funds, one each in the categories of a Balanced Hybrid Fund, an Aggressive Hybrid Fund and a Dynamic Asset Allocation Fund / Balanced Advantage kind of fund. The categories mentioned by me here are the latest categories as per SEBI guidelines and you may find different ones (the old ones) on the popular websites if you decide to do it yourself. I would also like to suggest you to search out and go along with a good financial advisor who would be able to properly assess your future requirements and guide you correctly, if you are comfortable with the idea.

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Col. Sanjeev Govila(Retd)
Col. Sanjeev Govila(Retd)

Col. Sanjeev Govila(Retd)

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