Financing a Home Purchase in India through Provident Fund

For purchase of a house or plot or for construction of a house

Under the Provident Fund scheme, an employee can withdraw money from his provident fund, after completion of contribution of five years, for the purchase of plot and/or construction or purchase of a house. The loan can also be taken, for the construction of a house on the plot of land owned by you or your wife, or jointly by both. The loan amount would depend on the purpose for which you are taking the loan. For purchasing a plot, the loan available shall be restricted to 24 months’ basic salary and dearness allowance (DA), subject to a maximum of the lower of either the balance in your provident fund account or the cost of the plot.

In case you want to avail of the loan, to purchase or construct a house, availability shall be enhanced to 36 months of basic salary and DA, with the maximum again subject to lower of balance in the provident fund account or cost of the house. It is pertinent to note that the property cannot be purchased jointly with anybody else, except your spouse, for withdrawing from the provident fund.

In case you withdraw from your provident fund account, the construction should begin within six months and be completed within 12 months of the withdrawal. In case you intend to buy a ready house, the purchase also needs to be completed within six months. The withdrawals for purchase/construction can be made in one or more instalments, depending on the circumstances.

 

For addition/improvement of the house owned by self and/or the spouse

You are also entitled to withdraw money from your provident fund account, for making additions or improvements to a residential house that is owned by you or your wife or jointly. This withdrawal can only be availed, after five years from completion of the house. It is not necessary that the house for which you want to carry out the improvements should be the same, on which you had availed the withdrawal facility. This withdrawal for improvement can be availed, even if you have not availed of the withdrawal facility for purchase or construction of the house. The amount that you are eligible to withdraw, for improvement or addition, is restricted to 12 months’ basic salary and DA, subject to lower of the balance relatable to the employee’s share with interest in your account or the cost of such improvement.

You can also avail of the withdrawal facility again, only after 10 years from the first withdrawal, subject to the same eligibility criteria, vis-à-vis the amount.

Advances for repayment of housing loan

The provident fund scheme allows you to avail of the withdrawal facility, for repayment of the outstanding balance in a home loan taken by you or your spouse for the above purposes. The advance amount cannot exceed 36 months of basic salary and DA. This withdrawal can only be made for loans, availed either by the members or by the spouse, from specified entities like governments and state government, registered co-operative society, state housing board, nationalised banks, public financial institutions, municipal corporation, or any development authority, for purchase of a house.

(The author is a taxation and home finance expert, with 30 years’ experience)

DISCLAIMER – The views expressed are solely of the author and Propcorner.in does not necessarily subscribe to it. Propcorner.in shall not be responsible for any damage caused to any person/organisation directly or indirectly.

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