How Can I Use My PF for a Home Loan While Still Employed? Seeking Advice

I will be completing my 5 years in an MNC company on 10th Nov 2012, and I will need funds during the year 2012 as I have taken a flat and will need to make payments for the demands that will be coming up in 2012. For that, I want to use my PF next year when I complete 5 years. Now, to use PF, I have two options:

Option 1: Take a Loan on the PF Amount

- Can I take a loan for my flat in Nov 2012, which was booked 1 year back? Please note that the bank is also financing a partial amount of my home.

Option 2: Withdraw PF Amount After Leaving the Company

- I have read the rules that you can withdraw, but you should be unemployed for 2 months, which I will not be. So, does it happen in practice as I have heard that many people withdraw money when changing jobs? I have asked my present company, and they say they fill out the withdrawal forms and submit them to the PF office whenever an employee wants to leave the company.

Please help me decide which option I should take as I want to use my PF amount to its fullest.

Understanding Your PF Withdrawal Options

First, you must understand that if you choose the second option, you have to be unemployed for two months. When you apply for withdrawal, both of your funds, i.e., EPF and EPS, will be withdrawn. Legally, you must be unemployed for two months.

In the case of the first option, you will be given a loan which is provided from EPF only, not from the pension account. Only 90% of the total EPF amount will be given, such as in your case, a loan for the purchase of land or a house.

The choice is yours.

Stay Cool, Atom

In the 2nd option, there is a requirement for an encumbrance certificate, which I believe states that the property should not be mortgaged with anyone. Since I have taken a home loan, it's mortgaged with the bank. So, would it be possible to take a loan on PF?

Also, regarding the 1st option, I agree there is a legal requirement for 2 months, but I just wanted to know if it is practically followed, as people withdraw their PF amount and I came to know about this rule only after searching; else, no one has ever told me so.

There is no problem with taking a home loan even if the bank funds it. The necessary documents need to be produced to take the home loan, including a copy of the mortgaged property.

Regarding the Withdrawal

You need to submit the form in such a way that there is a 2-month break. Even if the person has joined a new company, they will be treated as a fresh employee with a new code number.

So that means I have both the options to take the PF loan or withdraw the PF amount.

Verification of Unemployment by EPFO

About 2 months of unemployment, is there any cross-check by the EPFO to verify that the employee was unemployed for 2 months? I am just worrying about what happens if they know. What charges would the person then be entitled to?

Understanding EPF Unemployment Status

Unemployed in the EPF sense means you must not be employed where EPF is applicable.

Verification by EPFO

Regarding cross-checking, EPFO does not actively cross-check, but it can verify the information if it is provided to them in this regard.

Consequences of Misreporting

Charges imply that if they "find out," you might have to bribe the officer, and it is over. Seriously, if they find out, the liability will be yours and the employer.

Withdrawal of PF While in Service

It's not possible to withdraw while in service, as per my knowledge. Along with withdrawing the application (Form 10C & 19), there are other supporting documents that have to be enclosed, like Form 3A and Form 5/10 from the employer, which will give a clear picture of when you joined and when you were relieved from the company. After that, you cannot continue PF contributions with the same company. However, you can withdraw if you are changing employers, meaning you are moving to another job.