One of the most well-known tax-saving and investment instruments in India is the Employee Provident Fund (EPF) plan. It is designed to provide employees with financial security at the time of retirement as well as serve as a finance cushion against unexpected events.
Medical emergencies are regarded as a significant and legitimate reason amongst the several reasons for which EPF funds can be withdrawn. This article discusses the eligibility, rules, withdrawal calculations, and issues related as it speaks of the nitty-gritties of utilizing your EPF fund in the midst of medical needs. It also brings up critical points of withdrawal limits, documentation, and deadline.
What is EPF?
EPF is a retirement savings plan compulsorily provided by the government whereby employees and employers together contribute towards a retirement fund each month. EPF is administered by the Employees’ Provident Fund Organisation (EPFO) and offers various benefits like tax deductions, guaranteed rate of interest (currently 8.15%), and part withdrawal for specific reasons like acquisition of home, children’s wedding or education, and medical emergencies.
The EPF fund is the savior of an employee when he or she requires the funds for urgent medical expenditure.
Eligibility for EPF Fund Withdrawal Due to Medical Emergencies
EPFO allows withdrawal of EPF funds by employees under certain stringent circumstances. The following is what you need to know regarding eligibility for medical emergency withdrawal:
#1. Who Can Apply?
- A disease must be endured by the individual employee or a dependent family member (i.e., spouse, children, and parents) to justify the withdrawal.
- Active EPF account holders alone are eligible for medical emergency withdrawal.
#2. Withdrawal Situations Eligible:
- Hospitalization due to serious medical condition like heart surgeries, kidney failure, stroke, cancer, or other fatal diseases.
- Surgical operations or medical procedures involving immediate financial intervention.
- Accidental disabilities calling for hospitalization.
Withdrawal Rules for EPF Fund in Medical Treatment
EPFO explicitly defines rules and regulations for withdrawal in the event of a medical emergency. Below are key rules to note:
#1. Purpose of Withdrawal:
During emergencies, EPF corpus can be withdrawn by staff for payment of hospital bills, medical charges, consultation fees, and the cost of connected treatment.
#2. Maximum Limit for Withdrawal:
The highest permissible withdrawal amount is lower than:
- 6 times the current basic monthly salary + dearness allowance, OR
- Overall contribution by the employee to his/her EPF account (excluding the employer contribution).
E.g., if the basic salary + DA of an employee is ₹25,000 and his/her contribution is ₹1,80,000, the permissible amount of withdrawal in case of medical requirements will be ₹1,50,000 (i.e., 6 × ₹25,000).
#3. Conditions of Withdrawal
- A minimum service period is not required to get EPF withdrawal under medical emergencies.
- Doctor’s/hospital’s medical certificate is necessary to authenticate the purpose.
#4. Withdrawal Frequency:
No withdrawal frequency restrictions are present under medical emergencies.
#5. Tax Implications:
Withdrawals for medical emergencies are non-taxable under standard circumstances if the service period of the employee is greater than 5 years.
How to Make an Application for Withdrawal?
It is highly eased to apply for withdrawal of EPF fund in case of medical emergencies. Do the following steps:
#1. Submission of Form:
- Complete Form-31 (EPF Advance Form) and submit it to the employer or login to the EPFO portal for e-claims.
#2. Documents to be submitted:
- Doctor’s prescription or evidence of hospitalization.
- Medical bills or estimate of treatment.
- Evidence of identification.
- EPF UAN (Universal Account Number) details.
#3. Approvals Timeline:
- EPFO tends to disburse the withdrawal claim within 15-20 days from the date of documents’ verification.
Difference between an EPF Fund and PPF Account
Most individuals equate EPF monies with PPF accounts from the post office when they think of financial security options. Though both offer long-term saving as well as Section 80C tax exemption as per the Income Tax Act, they have different functionalities:
– EPF (Employee Provident Fund):
Designed specifically for salaried employees, EPF includes employer contribution as well as employee contribution to build a retirement corpus. EPF also permits partial withdrawals at the time of emergencies without closure.
– PPF (Public Provident Fund) in Post Office
PPF is a voluntary investment scheme available to all, not necessarily salaried class. It has a 15-year investment tenure and permits partial withdrawal from the 6th year onwards. PPF does not emphasize as much as EPF on short-term compounding with government-assured return.
EPF and PPF accounts both provide flexibility in withdrawing but are quite different from each other when it comes to access and utilization. It should be ensured that EPF withdrawal is indeed put to use for emergency needs and not diverted as an alternative to PPF investment.
Key Considerations
- Employees must keep their UAN-linked EPF accounts and records up to date in order to claim money promptly in the case of medical misfortune.
- EPF advance withdrawal facility should be left as the last source of finance because early withdrawals impact future savings.
- One might think of seeking substitute medical insurance schemes or saving schemes like a PPF account in the post office, a wonderful tax-saving tool with long-term compounding benefits.
Summary:
EPF fund withdrawals are a financial cushion in times of sudden medical emergencies. The eligible employees can withdraw the amount with no service period, provided they substantiate their claim with certified medical documents. The extent that can be withdrawn is six times the basic pay plus dearness allowance or the aggregate personal EPF contribution, whichever is lower. The mechanism is simplified by the EPFO’s portal, thus claims being settled at the earliest. But investors must closely weigh the impact of premature withdrawal of EPF money on long-term retirement savings.
While the EPF is most appropriate for immediate liquidity requirements, another savings instrument, such as a post office PPF account, could provide a better compounding advantage for withdrawals after several years. It’s necessary to split money for today and money for tomorrow.
Disclaimer:
Indian financial market is regulated by changes in laws and regulations. Members and investors of EPF should thoroughly evaluate all the implications, risks, and losses of withdrawing money prior to proceeding. The information provided in this post is not expert financial guidance, and one should consult experts for individualized solutions.