Many people have lost jobs or taken a pay cut as a result of the COVID-19 pandemic. To improve the liquidity situation of such individuals, the Central Government recently came out with some relief measures especially in relation to the Employee Provident Fund. 

Let’s understand the nitty-gritty. 

1. Employees allowed withdrawing up to 75 per cent of their EPF balances 

Here it is important to know that there is an upper limit to the extent of three months of basic salary (and Dearness Allowance (DA)). So, for instance, if EPF (Employment Provident Fund)  outstanding is Rs 5 lakh and your basic salary is Rs 80,000 per month, the maximum withdrawal permitted is only Rs 2.4 lakh (Rs 80,000 * 3) and not Rs 5 lakh. One can, however, withdraw a lower amount. 

You can make these withdrawals by citing the purpose as ‘Outbreak of pandemic (Covid-19)’ and even when you are employed. Otherwise, premature withdrawals from EPF are allowed only under exceptional circumstances like unemployment, illness, marriage or buying a house. 

If you are unemployed for more than a month, you can withdraw up to 75 per cent of the EPF balance without any limitations. In all the cases, there are neither tax liabilities on withdrawals nor any obligations to refund it. 

2. The statutory rate of EPF contributions of both the employer and the employee reduced to 10 per cent of basic salary and DA 

It is applicable for all establishments covered under the EPF Act barring central and state public sector enterprises. In the case of these public enterprises, the contribution of the employer (Government that is) will continue to be at 12 per cent as before. Also, the lower rate is applicable only for salaries of May, June and July 2020. 

How much will it improve your take-home salary? 

Say, for instance, your basic salary is Rs 80,000 and PF contributions is part of your CTC (Cost-to-Company), it would result in higher take-home pay to the maximum extent of Rs 3,200 (4 per cent of Rs 80,000) every month till July 2020. 

2 per cent of reduced contributions from your end will increase your inflow, while the employer shares the differential (2%) to you as additional salary. The latter, however, will be taxable based on your tax slab.

Game plan

If you are falling short of money, ask your employer to reduce the PF contributions. However, if there are no liquidity issues, continue with 12 per cent contributions as earlier. If your employer also continues with 12 per cent contribution, there would be no improvement in your take-home salary. 

Some employees opt for VPF (Voluntary Provident Fund) contributions, whereby they contribute more than 12 per cent of their basic salary towards PF. If you have opted for it, tell your employer to do away with it in order to improve your liquidity. 

If you opt to withdraw in a lump sum manner from your EPF balances, park the excess money in a liquid fund and transfer funds systematically into good and reliable equity funds through a Systematic Transfer Plan.

Alternative investing

Lured by its high interest rate (8.5 per cent for 2019-20), some people look at VPF as an investment. However, its interest rates are likely to be revised lower for 2020-21 with interest rates of most small saving schemes being slashed by more than one per cent recently. 

One can alternatively consider investing in equity funds that can earn about 10-12 per cent over the long-term of 7 years or more. If you opt to withdraw in a lump sum manner from your EPF balances, park the excess money in a liquid fund and transfer funds systematically into good and reliable equity funds through a Systematic Transfer Plan.

Tax implications   

Under Section 80C of the Income-tax Act, EPF, as well as VPF contribution by the employee, are eligible for a tax deduction, subject to an overall limit of Rs 1.5 lakh per annum. 

A lesser contribution to PF during the year due to new PF rule relaxations can have implications for your Sec 80 C contributions. If you are falling short, invest the difference in ELSS.


Reduced PF contributions might not improve your take-home salary substantially. If the situation is truly dire, consider withdrawing money from your PF balances to tackle liquidity issues. 

Procedure for PF withdrawal

  1. Login to the EPFO portal or use mobile app UMANG 
  2. Do necessary validations* 
  3. Proceed for online claims (PF advance that is) by stating purpose as ‘Outbreak of pandemic (Covid-19)’ from the drop-down menu
  4. Enter the amount to be withdrawn and upload a copy of bank cheque
  5. Get credit in your bank account within three days

*UAN is to be validated with Aadhaar and KYC of bank account and mobile number seeded in UAN.