He was told he could withdraw the VPF anytime after a five-year lock-in period. Fast-forward to 2025, and he needed to withdraw funds to purchase a flat. To his surprise, there was no separate VPF accounting in his account. He could only see his EPF balance, and withdrawals, too, had limitations.
“It is a misconception that the VPF and the EPF exist in silos. Any contribution above the statutory PF amount (12% of basic pay) is the VPF. In the case of employees of exempt employers, it gets accounted for separately in the fiscal year of contribution. Still, when the closing balance is carried over to the next fiscal year, the VPF is clubbed and reflects as a single entry as employees’ contributions,” said Adarsh Vir Singh, founder of social security consulting firm Nidhi Niyojan.
“In non-exempt cases, employers maintain a separate record of the EPF and the VPF at their end. The passbook mentions employee contribution (EPF+VPF) as a single entry, employer contribution, interest credit and TDS, if applicable,” he added.
From the fiscal year 2021-22 onwards, the Employees’ Provident Fund Organisation (EPFO) has been deducting tax at source (TDS) on interest income at 10% if the annual contribution to the EPF+VPF is above ₹2.5 lakh and the interest is more than ₹5,000, said Sanjay Kesari, regional provident fund commissioner-I (retired), EPFO.
“Whether TDS or no TDS, the member has a responsibility to add the interest on his contribution above ₹2.5 lakh as his income and pay the balance applicable taxes,” he added.
So far as withdrawals from the VPF are concerned, the rules are the same as those for the EPF. Most withdrawals require you to complete five years of membership. Others may have a minimum service period of three years, seven years or 10 years. All PF withdrawals are tax-free, irrespective of the PF membership period.
Allowed withdrawals
You may purchase a home from a builder or an individual. Withdrawals are allowed in both cases. However, if you buy a home from a central or a state government or a housing agency, the admissible amount will be paid directly to them, not to the member.
The same holds for the construction of a house. The funds will go to the agency if you buy the land from them. You may construct a house on a land owned by you, your spouse or jointly by both. You will receive funds in that case. In all cases, you need to have completed the service period or at least five years.
How much will the permissible withdrawal be?
Let’s understand with an example. Suppose Mr. A has to buy a flat worth ₹1 crore from a builder. His PF balance, which includes employer and employee share and interest, is ₹40 lakh. His existing PF wages or his basic salary is ₹30,000 per month. As per the formula, the admissible amount will be the least of 36 months’ wages, his PF balance and the actual requirement. It means Mr. A will be eligible for ₹10.8 lakh (36* ₹30,000).
If the withdrawal is for the construction of a house on land, 24 months’ wages are taken into consideration instead of 36 months. The rest of the formula remains the same.
Note that you can withdraw PF only once to purchase or construct a house for which the above formula applies. “Withdrawing it for a second house is possible only if the house is being bought from a central or a state government or a housing agency. You can buy it as an individual or as a member of a cooperative society for housing. In both cases, funds will go to the seller not to the member. The PF membership requirement in the former is five years and three years in the latter,” said Kesari.
The formula for the admissible amount in the former is PF balance or the actual cost, whichever is least. It is 90% of the PF balance in the latter.
Withdrawals for home loan repayment (taken by a member or a spouse or jointly) go directly to the lender such as banks or housing finance companies which have given you the loan. “Payment is made to lenders and not the member. You need to have completed 10 years of membership for this withdrawal. The eligible amount will be the least of the 36 months’ wages, PF balance or the loan outstanding,” said Kesari.
Withdrawals for home renovation can be made twice: Once five years after buying or constructing the flat and once 10 years after the earlier withdrawal. The admissible amount will be the least of 12 months’ basic wages, PF balance, or the amount applied.
How to withdraw
The process is simple. Visit the EPFO portal and log in with your UAN and password. Now go to ‘Online Services’. Among all services, click on ‘CLAIM’. It requires you to fill out Form-31. Before you submit your application, you need to verify your bank account.
After verification, you need to select the purpose for withdrawing the amount. Provide other details such as your contact number, address, and the date of joining. You need to upload a bank cheque or a passbook before you click submit to apply for the withdrawal.
“The cheque needs to have your name printed on it. If you use a passbook, it needs to have a photo, and it should be attested by a bank manager. A lack of it may lead to rejection of your application. It is among the most common reasons for rejections,” said Kunal Kabra, founder and chief executive of Kustodian.life, a tech firm providing claims resolution across EPF, banking, wills, and trusts.
Withdrawals, where funds come to you, can be made online, but you need to follow an offline process where the money goes directly to the lender or seller. For example, the withdrawal for home loan repayment will have to be directed offline since funds will be going directly to the bank.
