Withdraw ₹3 lakh from EPF, lose ₹35 lakh in 30 years

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  • You can make tax-free withdrawals of up to three months of salary or 75% of the balance from the EPF accounts, whichever is lower
  • The EPF corpus can account for a substantial part of your retirement kitty, provided you allow it to grow over the years and let the magic of compounding play out

Within 15 days of the government’s announcement, allowing withdrawal from Employees’ Provident Fund (EPF) to help people tide over any cash crunch due to the ongoing covid-19 crisis, on 28 March, the EPF Organization processed 331,000 claims, disbursing 946.49 crore. Besides, 481.63 crore was withdrawn by 40,826 members of exempted PF Trusts, as on 17 April, according to an EPFO press statement.




You can make tax-free withdrawals of up to three months of salary (basic pay and dearness allowance) or 75% of the balance from the EPF accounts, whichever is lower. On an average, an EPFO member who applied for withdrawal took out 28,500, while a member of the exempted PF trust took 1.18 lakh. However, such withdrawal can reduce your retirement corpus drastically. We tell you how.

Impact on retirement corpus

Salaried individuals have to mandatorily contribute 12% of their monthly salary (basic pay and dearness allowance) towards the EPF, and the employer matches the contribution. The EPF corpus can account for a substantial part of your retirement kitty, provided you allow it to grow over the years and let the magic of compounding play out.

Even a small withdrawal midway can impact the retirement corpus drastically. According to back-of-the-envelope calculations, if your retirement is 30 years away and you withdraw 1 lakh from your EPF account now, your retirement corpus will come down by approximately 11.55 lakh, assuming that EPF continues to give an interest rate of 8.5% per annum (the rate for FY20) during this period. The larger the withdrawal amount, the larger will be the hit to your corpus. So, if you withdraw 3 lakh from the EPF account, the corpus will reduce by as much as 34.67 lakh.

Last resort



According to experts, digging into retirement funds should be the last resort for investors. “EPF offers the highest tax-free return compared to all other fixed-income instruments. While withdrawal from equity investment is also not advisable at this point of time, one should first look at fixed deposits or debt funds for withdrawals,” said Varun Girilal, executive director, Mitraz Financial services Pvt. Ltd, a financial planning firm. “However, if you are facing severe cash crunch and there is no other source of fund, withdrawal can be made from PF account to maintain liquidity position,” Girilal added.



Typically, EPF is the only retirement instrument that people invest in, so it’s better to leave it untouched as long as possible.

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