PF Withdrawal of Three Months Salary is more beneficial than EMI Moratorium?? Process of PF Withdraw
We know many are planning to arrange funds for investing into stock market considering its lowest valuation in the hope of good returns in future. Moreover, this may also be tough time for many as unfortunately many employers may resort to salary cuts or Job cuts. In this time, Government has decided to come in support of its citizens to allow NON-REFUNDABLE Advance from PF Account equivalent to Three months Basic Salary and Dearness Allowance or 75% of PF Balance which ever is less at Zero (0%) rate of interest. On the other hand as per instructions of RBI, Banks have allowed EMI Moratorium on Bank Loans and Credit Card Payments. Therefore, it may become tough choice between EMI Moratorium and PF Withdrawal. We will try to resolve this confusion with strong guiding points.
Comparison of PF Withdrawal with EMI Moratorium
Many would be thinking that PF Withdrawal has zero cost as it is provided by EPFO at zero rate of interest. But this is wrong conclusion as after withdrawal from PF, your PF Balance would get reduced so your interest income on PF Balance. It is also to be noted that interest income on PF is exempt for taxation purpose. For information of readers, Interest Rate on PF was announced at the rate of 8.50% for FY 2019-20.
So while taking decision between PF Withdrawal and EMI Moratorium, effective interest cost (net of tax) on various Loans with interest income on PF Balance is compared in below Table:Type of Loan Case ScenariosFinance Cost of PF WithdrawalEffective Finance Cost of EMI MoratoriumOur Suggestion with RemarksHome Loan (with interest is Less than 2 Lakhs)8.5%In the Range of 6.4% to 7.2% (assuming tax rate of 20% on interest cost)EMI Moratorium is beneficial (More tax rate applicable to you, more it is beneficial)Home Loan (with interest is more than 2 Lakhs)8.5%8% to 9%Though finance cost is same in both case, EMI Moratorium is beneficial considering retirement security involved in PF.Car Loan8.5%9% to 10%PF Withdrawal, with advice that once your financial position is good, you make adequate voluntary contribution in PF balance to compensate it.Personal Loans8.5%12%-13%PF Withdrawal with Same Advice as aboveCredit Cards8.5%24%-36%PF Withdrawal with Same Advice as given in case of Car Loan
Process of Withdrawal of COVID-PF Advance
EPFO has made the process very easy to withdraw Non- Refundable PF Advance from your PF Account with clicks of button as listed below:
Requirement for Online Submission of Claim: If your UAN is validated with Aadhaar and KYC of Bank account and Mobile number is seeded in UAN.
Process for Online Withdrawal:
Go to Online Services>>Claim (Form-31,19,10C & 10D)
Enter last 4 digits of your Bank Account and verify
Click on “Proceed for Online Claim”
Select PF Advance (Form 31) from the drop down
Select purpose as “Outbreak of pandemic (COVID-19)” from the drop down
Enter amount required and Upload scanned copy of cheque and enter your address
Click on “Get Aadhaar OTP”
Enter the OTP received on Aadhaar linked mobile.
Claim is submitted
Amount will be directly credited in your Bank Account.
Tax Treatment of COVID- PF Advance
Many may be confused that as it is withdrawal before completion of five years of service, it may be taxable. But as it is in the nature of Advance (though non refundable and similar to withdrawal only), there would not be any tax on this COVID-PF Advance.
Other Important Points on COVID-PF Advance
Claims for advance to fight COVID-19 are being processed on priority considering exigency of the situation.
These Rules are equally applicable to members of PF-Trust.
Maximum Limit of Advance is 75% of PF balance or three months Basic Salary along with Dearness Allowance which ever is lower.
No certificate or documents are to be submitted by member or his/her employer for availing the benefit.