General Provident Fund (GPF) Withdrawal Rules and Loans
In case you didn’t know, when we say “Provident Fund”, we actually mean 4 different types unless and until we actually spell out a name like Public Provident Fund or Employees Provident Fund. Surprised? Yes, there are 4 different types of Provident Funds out there and you can opt for any one of those 4. So, what are those types? Here they are:
- General Provident Fund, which also goes by the name, Statutory Provident Fund.
- Employees Provident Fund, which also goes by the name, Recognized Provident Fund.
- Unrecognized Provident Fund.
- Public Provident Fund.
When it comes to subscription rules, withdrawal rules as well as taxability rules, each Provident Fund has it very own set of rules and regulations that do not match with the others.
When it comes to General Provident Fund or Statutory Provident Fund (abbreviated as GPF), the rules pertaining to withdrawal have been very stringent. However, only recently, the Union Government decided to relax withdrawal rules for GPF and even increased the limits for withdrawal.
This new move by the government will help 50 lakh employees of the Union Government.
Before we take a look at the revisions made, let us take a quick look at the GFP itself.
What Really is GPF?
GPF full form is General Provident Fund. It has another name – Statutory Provident Fund. This fund is maintained by Semi-government bodies, Government bodies, Local Authorities, Universities, Railways etc.
GPF states that all contributions made towards GPF account in a year will be exempted from taxation for that fiscal year. People who invest in GPF are entitled to claim tax deduction under 80C of Income Tax Act.
One of the most interesting aspects of GPF is that whatever interest is earned by the GPF holder against his or her investments is not counted as the individual’s income. This means, the interest earnings are completely exempted from taxation.
Also, when the GPF holder retires, the maturity amount (also sometimes referred to as redemption amount) is not taxed either. This means that GPF falls under EEE- category. EEE stands for Exempt – Exempt – Exempt category.
Even if an employee who has GPF account decides to simply resign from the job or decides to terminate GPF account, the amount he or she withdraws will not be taxed.
New Set of Rules for GPF
The new rules that have been set for General Provident Fund are summed up below in a bullet list:
- Reduction in service period: Previously, a person was allowed to withdraw GPF funds for pre-selected purposes only and only if the person completed 15 years of service. However, this condition has now been changed and the mandatory service period required for such withdrawals have been reduced to 10 years. The pre-selected purposes have been summed up below:
- Covering expenses of education: On interesting thing about GPF is that a person can actually withdraw GPF amount not just for higher education but also for primary education and secondary education. Withdrawal can be for covering the expenses of any institution and any stream of study. This is the new rule. Under previous rule, GPF withdrawal was allowed only and only for covering expenses of education after completion of high school.
- Expenses that are obligatory: Previously, obligatory expenses were counted as expenses for medical treatment either of the GPF subscriber or of the dependent family members of the subscribers. Now, the scope of obligatory expenses has been increased and now, engagement (betrothal), funeral, marriage and various other ceremonies have been included for both the subscriber as well as his dependent family members.
- Housing expenses: Now GPF withdrawals will be allowed if a subscriber wants to acquire or build a house where he or she will be residing or wants to purchase a readymade flat. It can also be withdrawn if the GPF account holder wants to repay a home loan, for purchasing a site where he or she wants to build a house, for reconstruction or making additions to a house that the subscriber has already acquired and also for alterations, renovations, additions to an ancestral house.
- Vehicle expenses: If the subscriber wishes to purchase a car, a scooter, a motorcycle etc., he or she can withdraw GPF funds. He or she may also withdraw the funds for repaying a loan that he or she has taken out for the purchase of the vehicle.
- Consumer durables: If the subscriber wants to purchase a consumer durable, he or she is entitled to withdraw GPF funds.
- TAT for Withdrawal: Under the new rules, the government ensures that the withdrawal requests will be processed within a time frame of 15 days. There will be no delays whatsoever and that the TAT or turnaround time is applicable for both formats of withdrawal- partial and full. The new rule also states that when withdrawal requests are made for emergency situations like illness, the request will be processed within a time frame of 7 days.
- Percentage of Funds That Can Be Partially Withdrawn: The new rules and regulations state that if the partial withdrawal is being made for covering expenses for medical care, up to 90% of the standing credit will be handed over to the subscriber. However, in all other cases, the partial withdrawal limit has been set to lesser of three-fourth (3/4th) of the credit amount in account or amount equivalent to 12 months of salary.
- Documents Not Required for Withdrawal: The new set of withdrawal rules have done away with the requirement of furnishing documents that prove the validity of the subscriber’s request. All that the subscriber needs to do is to provide a self-declaration and that will be sufficient. Irrespective of the withdrawal cause, all that the subscriber needs to do is to get an approval from Head of the Department or HOD. That’s all.
- Those government employees who will go for superannuation or retirement within a period of two 2 years (that is, due within 24 months) can go for 90% of GPF balance withdrawal.
That’s all about the new set of rules and regulations when it comes to withdrawal of General Provident Fund. These new rules are definitely way friendlier compared to the previous ones and all GFP subscribers will greatly benefit from the same.