How to use your provident fund to finance a home purchase

Although a majority of the salaried individuals have a provident fund account, only a few are aware that they can withdraw from this fund, for various purposes connected with a house

There are various sources from where one can fund the purchase or construction of a house – from borrowing from friends and relatives, to taking a home loan. Salaried people, who are contributing to their provident fund, have an additional avenue to fund their home buying. One can withdraw from the balance in the provident fund account, subject to certain conditions and within certain limits. The withdrawals can be used for various purposes like buying a plot of land or a house (ready-to-move-in or under-construction) or for constructing a house. The scheme also allows you to withdraw your EPF balance to repay your home loan.

For purchase of a house or plot or for construction of a house

An employee who has completed at least five years of contribution to his provident fund account, can withdraw money for the purchase of a plot and/or construction or purchase of a house. The amount can be withdrawn for the construction of a house on the plot of land owned either by you or by your wife, or jointly by both. The eligible amount of withdrawal would depend on the purpose for which you are withdrawing the money. For purchasing a plot, the amount available for withdrawal shall be restricted to 24 months’ basic salary and dearness allowance (DA). The amount of withdrawal, however, shall in no circumstances exceed the cost of the plot.

In case you want to avail of the withdrawal facility to purchase or construct a house, the availability gets enhanced to 36 months of your basic salary and DA, with the maximum amount again restricted to cost of the house. It is pertinent to note that the property cannot be purchased jointly with anybody else, except your spouse, for withdrawing from the provident fund. In case you withdraw from your provident fund account, the construction should begin within six months and should be completed within 12 months of the last instalment of withdrawal. In case you intend to buy a ready-to-move-in house, the deal for purchase also needs to be completed within six months. The withdrawals for purchase/construction can be made in one or more instalments, depending on the circumstances.

Withdrawal facility for member of a housing society

In addition to the withdrawal facilities available to you individually, you can also avail of the withdrawal facility from your EPF account, if you are a member of a cooperative society or registered housing society. This withdrawal facility can be availed of, for buying land for constructing a residential house from government or any approved government agency. The same facility is also available for the purpose of purchase or construction of a residential house. For being eligible for this facility by virtue of being a member of a society, the society should at least have ten members. The maximum amount of withdrawal permissible under this scheme, is restricted to 90 per cent of the accumulated balance in your EPF account, subject, however, to the cost of asset to be acquired.

The withdrawal facility as a member of a cooperative society cannot be made, unless the member has been contributing to the EPF scheme for a minimum of three years and the aggregate of the accumulation of the member, with his/her spouse, if the spouse is also a member, is a minimum of Rs 20,000 on the date of the application for withdrawal. This facility can be availed by you only once in your lifetime. Under this scheme you can get your instalments of any loan taken for these purposes paid through your EPF account, subject however, to there being sufficient balance in your account.

Withdrawal for addition/improvement of the house owned by self and/or the spouse

You are also entitled to withdraw money from your provident fund account, for making additions or improvements to a residential house that is already owned by you, or your wife, or jointly by both. This withdrawal can only be availed of, after five years from completion of construction of the house. It is not necessary that the house for which you want to carry out the improvements should be the same for which you had availed of the withdrawal facility. This withdrawal for improvement of your house can be availed, even if you have not availed of the withdrawal facility for purchase or construction of this house. The amount that you are eligible to withdraw, for improvement or addition to the existing house, is restricted to 12 months’ basic salary and DA, subject to the cost of such improvement.

You can also avail of the withdrawal facility again, only after 10 years from the first withdrawal for addition/improvement of the existing house, subject to the same eligibility criteria, vis-à-vis the amount. Any amount withdrawn from your EPF account and which is not used for the above specified purposes has to be refunded to the EPF account.

Advances for repayment of housing loan

The provident fund scheme allows you to avail of the withdrawal facility, for repayment of the outstanding balance of a home loan taken by you or your spouse, for any of the above purposes. The amount cannot exceed 36 months’ basic salary and DA. This withdrawal can only be made for repayment of the home loan taken either by the members and/or by the spouse, from specified entities like governments and state governments, registered cooperative societies, state housing board, nationalised banks, public financial institutions, municipal corporations, or any development authority, for purchase of a house. This facility can be taken, after you have completed at least 10 years of contribution to the EPF account.