In the midst of COVID-19, people are facing difficult times due to increasing financial spending. And that gets worse every day. To contain the problems, the government announced last year that at the time of the COVID crisis, a person could withdraw part of the amount from their EPF (Employees Provident Fund) account. It did so in the face of growing financial needs of people amid the pandemic.
The 1952 EPF program allows its members to make an advance payment in the event of an epidemic. A person can withdraw an advance from their EPF balance up to three months of base salary plus love money (DA) or 75 percent of the balance in their account, whichever is lower. This advance is non-refundable and the individual does not need to return the withdrawn money to their EPF account. The person seeking an advance can submit an online application by logging in to the EPFO website.
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Let’s say Ms X has an annual salary of Rs 7.2 lakh and wants to withdraw an advance from her EPF account due to the COVID-19 crisis. Ms. X has a base salary of Rs 3.6 lakh which is Rs 30,000 per month. Ms. X has been employed for over two years and her EPF balance is Rs 1 lakh. Now Ms. X can withdraw up to Rs 30,000 X 3 Rs, which is the base salary for three months. Or Rs 75,000 (75 percent of Rs 1.00,000) which is 75 percent of the balance in the member’s account. This allows Ms. X to withdraw Rs 75,000 as a non-refundable advance from her EPF account.
Tax calculation
The option of EPF Withdrawal and Obtaining a Non-Refundable Advance is to help employees in need of money during the COVID-19 crisis. Employees can choose to use their EPF savings to meet their financial needs. An EPF payout is only tax-exempt if the employee has been on uninterrupted service for five years.
In those cases where an advance payment option is offered due to such a pandemic situation, a tax or a TDS on the payment will nullify the purpose of the advance payment, namely the provision of liquidity. The EPFO has made it clear that there is no income tax liability on the amount of the advance an employee withdraws due to COVID-19.
