Your Money: Avoid withdrawing provident fund money to buy a house

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You would soon be able to use a major chunk of your retirement money to buy a house. The government will amend Employees Provident Fund (EPF) scheme to enable members of EPFO to withdraw up to 90 per cent of their fund for making down payments while buying homes.

The provisions to withdraw money from EPF account always existed but there was a restriction on the amount a person could withdraw. A subscriber can get a loan worth 24 times the wages (basic salary plus dearness allowance).

Financial advisors say that an individual should dip into the retirement corpus only if it’s a first house, and the property is not bought for investment. Breaking retirement corpus should be the last resort for any one. An individual should do it only if he can contribute that money back into the PF in due course of time, say, by increasing contribution. Therefore, only look at the PF money if you have at least 15 years of service left, that is, if you are not over 43-45 years old.

Instead of using PF money, financial advisors say that a person can pledge gold to buy a property. Using a real asset to create another one is a better option than using a financial asset.

While the modalities of the scheme are not yet out, Labour Minister Bandaru Dattatreya told Rajya Sabha that they are going to add a new paragraph 68BD. This means, most of the current provision will remain. The eligibility criteria to use your PF money to buy a home are very stringent and getting a sanction is challenging. For example, a person should be a subscriber for at least five years. The property also needs to be in the name of the applicant or jointly owned with spouse only. There’s a lot of paperwork involved, too.

The labour minister also informed that withdrawal would be permitted if the applicant is a member of a co-operative society or a housing society having at least 10 members. The subscriber can also use the money to pay off outstanding home loan.

As of today, if the individual is employed, the application needs to be made through the employer. The company processes the papers after the verification and send it to the regional EPFO office. While one can get the approval within a month, the time varies depending on the employer’s promptness and the regional EPFO offices.