Jun 73 min read

PF Withdrawal V/S PF Loan: Key Differences

Updated: Jun 8

What is PF Withdrawal?

PF withdrawal is the amount deposited in PF funds that earns interest, and the balance can be withdrawn after retirement or quitting employment. However, one can make a premature withdrawal after a month of unemployment, in which 75% of EPF account will be credited. The remaining amount is transferred to PF account of the new job.

There are certain conditions under which withdrawing of PF is allowed.

Retirement - Once the employee reaches the age of retirement, he can withdraw the full PF amount.
Unemployment - If an employee has been unemployed for more than 2 months, withdrawal can be done.
Medical Emergencies - In the event of serious illness or injury to a family member, you can withdraw for their treatment.
Home Loan Payment - Amount of home loan can be withdrawn as EPF advance, following certain conditions set by EPFO.

Pros and Cons of PF Withdrawal

Pros

The withdrawal of EPF is tax free after completion of 5 years of service.
It helps to maintain fund and lifestyle after retirement stage.
In case of emergencies, it works as a financial backup.

Cons

If the employee withdraws PF before 5 years, it becomes income that charged tax.
The biggest drawback of PF withdrawal rules is that the PF withdrawal is held for a lock-in period and cannot be used anytime and if you try to withdraw it before the lock-in period ends, a penalty may be applied.

What is PF Loan?

A PF loan allows employees to withdraw a portion of the amount from their PF account as an advance payment in case of an emergency. However, this is not an actual loan, but an advance payment that does not need to be repaid. Before withdrawing the amount as an EPF loan, EPFO will carry out appropriate verification to ascertain whether the reason for withdrawal is legitimate.

Now we know what exactly PF withdrawal and PF loan mean. Let's look at the main differences between them.

Key Differences between PF Withdrawal and Pf Loan

Title	PF Withdrawal	PF Loan
Purpose and Usage	Funds can be withdrawn permanantly for essential needs such as retirement, emergencies, or home purchasing.	Funds are taken for temporary period of time in order to repay. It can be used for emergency and significant cases.
Eligibility and Conditions	Withdrawal of PF can be given in certain conditions like retirement, marriage, housing needs, etc.	Loan of PF can be available on purposes like housing, education, or natural calamities.
Financial Impact	If withdrawal is done before 5 years, it affects financial security by charging tax.	There is no tax implications, but repayment is done along with interest.
Repayment Requirements	Withdrawal doesn’t need repayment.	Takin PF loan require repayment by monthly deductions.
Processing Time	Can be done with a straightforward process, documentation and verification might take time.	Its a quicker and easy process with with setting up repayment regulations.

These are some of the basic differences in certain aspects. Let's analyze the situations in which you can choose them in the order of these differences.

When to Choose PF Withdrawal?

PF withdrawal is more beneficial in situations where permanent access to funds is necessary, such as:

Retirement: To access the entire retirement savings.
Unemployment: To support yourself during periods of unemployment.
Medical Emergencies: When immediate funds are needed for medical treatment.
Home Purchase: For a significant expense like purchasing or constructing a home.

It's essential to consider the long-term impact on your retirement savings and potential tax liabilities before opting for PF withdrawal.

When to Choose PF Loan?