Plan to limit premature PF withdrawals to 75 pc

The Labour Ministry is considering limiting premature withdrawals of Provident Fund (PF) to 75 per cent of the deposits.

This would mean employees can withdraw only 75 per cent of their PF deposits till they attain the retirement age of 58. The Employees Provident Fund Organisation (EPFO) may also cap withdrawals at 50 per cent of the deposits in the next phase.

The existing provisions allow withdrawal of entire PF deposits for jobless employees two months after they leave their jobs. The break allows the employees to withdraw the entire amount citing necessities.

Those who go abroad or settle there can withdraw the entire amount even before completing two months of leaving their job. Women subscribers can avail this facility for marriage.
Employees in service can make withdrawals up to a certain percentage to meet financial requirements for marriage, education, illness and purchasing or construction of a house. The rules vary for companies who have their won PF trusts.

“The proposal for these changes has come to us. We will decide on it within a fortnight,” Labour Secretary Shankar Agrawal told reporters. Central Provident Commissioner K K Jalan confirmed it.

Jalan said the idea behind these changes is to make the PF an old-age security. It is being misused by people as a savings bank account. “Currently, out of the 1.3 crore annual claims, not less than 65 lakh are for full withdrawal,” said Jalan.

“If the proposal is implemented by the Centre, the total number of claims would come down to 50 lakh,” he added.

“A 100 per cent withdrawal means severance of ties with the EPFO and UAN (Universal Account Number). If an employee gets a permanent number, it should stay with him or her throughout,” said Jalan.

He said fewer withdrawals mean a bigger corpus for the EPFO. It gives better bargaining power for investing in different vehicles.

The changes in PF withdrawals are also being made in accordance with the budget proposals of the current financial year. According to the current budget, one will have to pay 10 per cent of Tax Deduction at Source (TDS) if he or she withdraws from his PF before completion of five years of service.

The calculation of five years of service will include previous employment as well. After five years, no TDS will apply.  Withdrawals of less than Rs 30, 000 will not attract TDS.