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PF money can help you to buy home

Some quick of the bat affordable home real estate developers have already started advertising 90% EPF withdrawal facility

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The Employee Provident fund Organisation (EPFO) has more than 15 crore member accounts on whose behalf it is managing a corpus of around Rs 9 lakh crore. This kind of large corpus converts to power for those who control these amounts.

In many countries, PF (or its equivalent contributory cumpolsory social-security funds) encourage its members to buy their own homes. During the first few years, the members are able to come up with the required down payment. The members also get a regular home loan for the balance amount and the ongoing contributions are used to pay off the home loans such that the member would normally own the fully paid for house by the time he reaches his 50s. He is able to then make up a retirement corpus after that but just in case the retirement corpus falls short the member can fall back on a reverse mortgage on his owned home to create a life long pension for himself. The governments naturally like this due to the known positive effects of the real estate industry on semi-skilled employment as well as growth in local and national economy. The governments thus back this up by providing tax breaks to the members and generally encouraging them to make use of their PF corpus to buy their own homes.

In India however, fearing reduction in its power base, the bureaucracy is loathe to release the corpus even if it is for the members own housing needs and also benefits the Indian economy. On paper they have schemes that allow the member to withdraw the amounts for purpose of buying own house but they introduce impossible to meet conditions that make such withdrawals nearly impossible.

Despite many such existing provisions, only 4.41 lakh EPF members (0.29% of the 15 crore accounts) could make such withdrawals in 2014-15 and not all of them would have made these withdrawals for buying a house. So the bureaucrats point to the provisions allowing such withdrawals and claim helplessness if the members fail to utilise it whilst at the same time ensuring that the impossible to meet conditions make any such provisions redundant.

Under pressure from the government they have now introduced yet another liberal withdrawal facility with the now familiar kicker (at least 10 EPF members must form a society and buy the houses in a pool). They have also cleverly notified this only to the online media and not the traditional media. This time though the scheme may yet succeed despite what the bureaucrats have planned. The builders who have to form a society for the buyers under Real Estate Regulatory Authority (Rera) anyways can pool the required 10 salaried buyers from different organisations but who are all EPF members.

Home loan lenders or real estate websites can also try doing the same. Some quick of the bat affordable home real estate developers have already started advertising 90% EPF withdrawal facility alongwith the PMAY benefit for the first time home buyers.

In an ideal world, the government should step in and lean on the EPFO bureaucrats to allow even single home buyers to avail of this withdrawal facility because there seems to be no justification for inserting a restrictive condition such as society formation and pooled buying except to prevent withdrawals. The government is already providing tax holidays to developers to develop affordable homes and providing subsidies of Rs 2.40 lakh for first-time home buyers. In fact, for the subsidy scheme for middle class first-time home buyers with annual family income between Rs 6 lakh to Rs 18 lakh they have even allowed re-sale flats to be included in the subsidy regime thus removing the bottleneck of availability of flats in approved projects. There is absolutely no reason why the EPFO should deny the PF withdrawal facility to such buyers. The second argument that this will prevent creation of retirement corpus does not wash in India because the National Pension Scheme option is always available for those who can afford to contribute further to create a retirement corpus.

Till the government comes out clearly, the fear remains that EPFO bureaucrats may “clarify” the pooling has to be of employees from the same organisation and kill this nascent initiative.

MONEY FOR PUTTING DOWN ROOTS

  • Some quick of the bat affordable home real estate developers have already started advertising 90% EPF withdrawal facility
     
  • Subsidy scheme for middle class first-time home buyers with annual income between Rs 6-18 lakh even allows re-sale flats to be included in the subsidy regime
     
  • There is no reason why Employee Provident Fund Organisation should deny provident fund withdrawal facility to such buyers
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