EPF 3.0: Withdraw PF by swiping from ATMs
Theoretically, the money lying in our provident fund, or PF, account, is touted as our safest asset class, not subject to any attachment or lien or any market volatility. Practically, though, the very idea of taking out this money makes us fret, courtesy the cumbersome process of making claims for
PF withdrawal
and the associated long waiting periods for requisite approvals from the Employees Provident Fund Organisation (EPFO).
However, the situation is going to change as the EPFO is rolling out its upgraded platform EPFO 3.0, most likely in June, for its 9 crore members.
EPF
members will be able to take out their
PF money
instantaneously via ATMs, just like from bank accounts, simply by swiping their PF withdrawal (ATM) cards. For such withdrawals, the members will need to keep their Universal Account Number (UAN) activated and seed their Aadhaar in their bank accounts. The EPFO has extended the last date for activating
UAN
and Aadhaar seeding in bank accounts to June 30.
Currently, for PF withdrawals, EPF members are required to fill their online composite forms on the EPFO website. Though the specified period for settling such composite claim forms by the EPFO is 20 days, in reality, it takes much longer to get one's PF money.
With the upcoming UPI integration and withdrawal facility via ATMs, PF withdrawal settlement is set to become swift and hassle-free. The withdrawal limit is expected to be kept at Rs.1 lakh or 50% of the accumulated balance. However, an official notification from the EPFO in this regard is still awaited.
Pull-out provisions
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Withdrawal from EFP account is permitted for multiple purposes, albeit under certain conditions and till a specified limit. Here are some common instances of taking out PF money.
This well-intended reform of enabling PF withdrawals via ATMs is revolutionary indeed. However, the practical implementation of this enabling functionality will be subject to the fulfilment of existing prescribed conditions for partial and full withdrawal of PF money by members. According to the scheme of the Employees Provident Fund & Miscellaneous Provisions (EPFO) Act, 1952, EPF members can withdraw their entire balance of fund contributions at the time of retirement from service. The rules also permit partial withdrawals by EPF members during the continuity of their service, for certain specified purposes and subject to the fulfilment of prescribed conditions. For a bird's eye view of the same, refer to the graphic.
Tax implications
This watershed moment in PF reforms may have its fair share of tax implications too, with which everyone must be acquainted. Unlike bank balance withdrawals, not all EPF withdrawals via ATMs will be tax free. According to Rules 8 and 9 of Part A of the Fourth Schedule to the Income Tax Act, withdrawals are tax-free only if they are made out of recognised EPF accounts and after rendering continuous service of five or more years with one or more employers.
Paradoxically, the current time-consuming and tedious process of submitting claims to take out money, and getting approvals, inherently acts as a disincentive or a deterrent for EPF members from making frequent and early withdrawals. Given the practical difficulties, EPF members usually prefer to wait till retirement to withdraw their funds.
However, the upcoming EPFO 3.0 facility for withdrawals via ATMs is naturally going to tempt EPF members to take money out of their PF account, more frequently and much before the completion of five years of continuous service. This, in turn, will make such withdrawals taxable at the applicable slab rates of the concerned EPF members, as per the provisions of the Income Tax Act.
TDS on early withdrawals
Another practical consideration to be mindful of while taking out PF money from ATMs will be the applicability of tax deducted at source (TDS) provisions. Any PF withdrawal via ATMs in excess of Rs.50,000 before completion of five years of service will require TDS at 10%, as per Section 192A of the Income Tax Act on premature withdrawals. Thus, the tempting urge of withdrawing one's PF money by just a swipe of the card needs a cautious and well-informed restraint. Provident fund money is our retirement corpus, so we should swipe it carefully.
The author is founder, Taxaaram India and Partner, S M Mohanka & Associates
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