Government likely to relax EPFO withdrawal norms to provide more flexibility to subscribers

EPFO

The Centre is considering relaxing withdrawal limits for Employees’ Provident Fund Organisation (EPFO) subscribers to provide members greater financial flexibility.

According to two senior government officials, the EPFO could ease withdrawal limits for the purpose of housing, marriage and education. Though the sources did not provide a timeframe, they said the government is looking is to implement these changes in the retirement saving plan within a year.

"We don’t want to put restrictions for the members, it’s their money…they should have the freedom to manage their fund according their needs," one of the officials told Moneycontrol on condition of anonymity. The officials, however, didn’t share details of the proposed changes.

At present, subscribers can withdraw the entire EPFO corpus only after they reach the retirement age of 58 or if they are unemployed for more than two months.

Restricted withdrawal

There are various restrictions for other withdrawal for other purposes. A minimum seven-year service period is required to withdraw up to 50 percent of the employee's contribution and accumulated interest for the marriage of the member, a sibling or a child.

For purchasing or constructing a house, the withdrawal limit is up to 90% of the accumulated corpus. The property must be in the name of the member, their spouse or jointly owned and a minimum 3-year service is required for withdrawal.

Up to 50 percent of the employee's contribution with interest can be withdrawn for the post-matriculation education of children, provided, a minimum of seven years in service have been completed.

Moneycontrol reported in July that the government may allow subscribers to withdraw the entire corpus or a part of it once every 10 years. "Every 10 years, there would be some addition to the accumulated corpus of each and every EPFO’s member… they should decide what they need to do," an official had said.

Easier norms needed 

Experts say relaxing EPF withdrawal limits or easing eligibility criteria would benefit subscribers, particularly those in the lower and middle-income brackets by giving them easier access to funds without resorting to borrowing.

Officials say the current rules are tight, with conditions that include minimum service periods, withdrawal caps, limits on frequency, and extensive documentation.

"The challenge for the proposed changes would be to strike the right balance by providing enough flexibility for members to use their EPF when required, while ensuring adequate safeguards so that the fund continues to serve its primary purpose of retirement security," said Manmeet Kaur, Partner at Karanjawala & Co.

Aurelia Menezes, partner at King Stubb & Kasiva, Advocates and Attorneys, said while the government’s intent has always been to preserve retirement security, the restrictive limits sometimes fail to recognise the immediate liquidity needs of subscribers.

"A more balanced framework — one that safeguards retirement corpus while still giving workers greater access to their funds — would make the EPF scheme more subscriber-friendly and responsive to real-life challenges," Menezes said.