New rules for partial PF withdrawal are more flexible but use with caution
Frequent or non-essential withdrawals could defeat the purpose of long-term savings.
- Oct 21, 2025,
- Updated Oct 21, 2025 2:18 PM IST
The recent changes approved by the Central Board of Trustees regarding partial Provident Fund (PF) withdrawals have sparked debate: will these reforms genuinely benefit members, or might they inadvertently restrict access to funds in critical situations?
One of the most notable changes is the increased withdrawal limit — members can now withdraw up to 75% of their eligible EPF balance, which includes both employee and employer contributions.
The minimum service period for all types of partial withdrawals has been standardised to 12 months, as against up to seven years for certain withdrawal types. Additionally, the number of permitted withdrawals has been increased up to 10 times for education-related purposes and up to five times for marriage-related purposes
Further, members will no longer need to provide justifications or supporting documentation under the “special circumstances” category, making the process more streamlined.
While the changes are designed to improve accessibility, they may also encourage overuse. The Ministry of Labour and Employment has revealed some concerning statistics — 50% of PF members had less than ₹20,000 in their accounts at the time of retirement and 75% had less than ₹50,000 at the time of final settlement
To prevent further erosion of retirement savings, a minimum balance requirement of 25% of total contributions has been introduced. This amount must remain in the account to continue earning interest and help grow the corpus.
These changes undeniably offer more convenience, but members must exercise financial discipline. Frequent or non-essential withdrawals could defeat the purpose of long-term savings, which are primarily intended to provide security in old age or during genuine emergencies.
Taxation is another critical consideration. Withdrawals made before completing five years of continuous service are taxable, unless under exceptional circumstances such as in case of termination of employment due to illness, discontinuation of the employer’s business or circumstances beyond the employee’s control
In such cases, the employer’s contribution and interest earned thereon are taxed as salary income. The interest on the employee’s contribution is taxed as income from other sources. Any Section 80C deduction claimed earlier in relation to employee share is reversed in the year of withdrawal
Previously, these tax implications were not really the consideration because partial withdrawals were only permitted after five years of service in most of the cases. However, with the new 12-month service requirement, more members may now face tax liabilities for early withdrawals.
Another important reform relates to final settlement timelines in case of unemployment. The waiting period for PF final settlement is extended from two months to 12 months. For pension withdrawal, the period is extended from two months to 36 months
Under the new rules, members will receive 75% of their balance immediately, with the remaining 25% payable after 12 months, as against the existing rule of receiving 100% after just two months.
This change supports the goal of ensuring continuity in social security benefits, especially when members are re-employed within 12 months. The pension account is retained for three years to maintain eligibility for future benefits.
However, this could pose challenges for those facing urgent financial needs. In such cases, members may feel constrained by the delay in full access to their own funds. To offset this, the CBT may consider incentivising members in such cases. This can be done perhaps by offering a slightly higher interest rate on the retained balance or through tax benefits for retaining funds during periods of unemployment. Such steps could encourage members to preserve their savings without feeling restricted.
International Workers (IWs) may also benefit from these reforms. Although there is no separate EPF scheme for IWs, Paragraph 83 — introduced in 2008 — modifies certain provisions specifically for them.
Currently, under Paragraph 69, IWs from countries without a Social Security Agreement (SSA) with India can withdraw their PF only upon retirement after attaining 58 years of age and/or in special cases of permanent disability or critical illness.
However, rules on partial withdrawals fall under Paragraph 68, which does not explicitly exclude IWs. Therefore, it can be argued that IWs should be entitled to the same partial withdrawal benefits as domestic workers.
The Karnataka High Court, in the 2024 case of Stone Hill Education Foundation v. Union of India & Ors., struck down Paragraph 83, calling it arbitrary and unconstitutional under Article 14 of the Indian Constitution.
However, there is a conflicting judgment: in 2018, the Bombay High Court ruled differently in Sachin Vijay Desai v. Union of India & Ors.
As of now, the Supreme Court has not ruled on this matter, leaving it open to interpretation. A clarification by the PF authorities on this aspect will be helpful.
These policy changes undoubtedly increase the flexibility and accessibility of EPF funds. However, members must act judiciously, considering the long-term impact on their retirement corpus and the tax implications of early withdrawals.
While the changes are progressive in nature, their effectiveness will depend on how responsibly members use these facilities. As with any financial benefit, discipline, awareness, and informed decision-making are key.
(Views are personal; the author is Partner, Mainstay Tax Advisors)
The recent changes approved by the Central Board of Trustees regarding partial Provident Fund (PF) withdrawals have sparked debate: will these reforms genuinely benefit members, or might they inadvertently restrict access to funds in critical situations?
One of the most notable changes is the increased withdrawal limit — members can now withdraw up to 75% of their eligible EPF balance, which includes both employee and employer contributions.
The minimum service period for all types of partial withdrawals has been standardised to 12 months, as against up to seven years for certain withdrawal types. Additionally, the number of permitted withdrawals has been increased up to 10 times for education-related purposes and up to five times for marriage-related purposes
Further, members will no longer need to provide justifications or supporting documentation under the “special circumstances” category, making the process more streamlined.
While the changes are designed to improve accessibility, they may also encourage overuse. The Ministry of Labour and Employment has revealed some concerning statistics — 50% of PF members had less than ₹20,000 in their accounts at the time of retirement and 75% had less than ₹50,000 at the time of final settlement
To prevent further erosion of retirement savings, a minimum balance requirement of 25% of total contributions has been introduced. This amount must remain in the account to continue earning interest and help grow the corpus.
These changes undeniably offer more convenience, but members must exercise financial discipline. Frequent or non-essential withdrawals could defeat the purpose of long-term savings, which are primarily intended to provide security in old age or during genuine emergencies.
Taxation is another critical consideration. Withdrawals made before completing five years of continuous service are taxable, unless under exceptional circumstances such as in case of termination of employment due to illness, discontinuation of the employer’s business or circumstances beyond the employee’s control
In such cases, the employer’s contribution and interest earned thereon are taxed as salary income. The interest on the employee’s contribution is taxed as income from other sources. Any Section 80C deduction claimed earlier in relation to employee share is reversed in the year of withdrawal
Previously, these tax implications were not really the consideration because partial withdrawals were only permitted after five years of service in most of the cases. However, with the new 12-month service requirement, more members may now face tax liabilities for early withdrawals.
Another important reform relates to final settlement timelines in case of unemployment. The waiting period for PF final settlement is extended from two months to 12 months. For pension withdrawal, the period is extended from two months to 36 months
Under the new rules, members will receive 75% of their balance immediately, with the remaining 25% payable after 12 months, as against the existing rule of receiving 100% after just two months.
This change supports the goal of ensuring continuity in social security benefits, especially when members are re-employed within 12 months. The pension account is retained for three years to maintain eligibility for future benefits.
However, this could pose challenges for those facing urgent financial needs. In such cases, members may feel constrained by the delay in full access to their own funds. To offset this, the CBT may consider incentivising members in such cases. This can be done perhaps by offering a slightly higher interest rate on the retained balance or through tax benefits for retaining funds during periods of unemployment. Such steps could encourage members to preserve their savings without feeling restricted.
International Workers (IWs) may also benefit from these reforms. Although there is no separate EPF scheme for IWs, Paragraph 83 — introduced in 2008 — modifies certain provisions specifically for them.
Currently, under Paragraph 69, IWs from countries without a Social Security Agreement (SSA) with India can withdraw their PF only upon retirement after attaining 58 years of age and/or in special cases of permanent disability or critical illness.
However, rules on partial withdrawals fall under Paragraph 68, which does not explicitly exclude IWs. Therefore, it can be argued that IWs should be entitled to the same partial withdrawal benefits as domestic workers.
The Karnataka High Court, in the 2024 case of Stone Hill Education Foundation v. Union of India & Ors., struck down Paragraph 83, calling it arbitrary and unconstitutional under Article 14 of the Indian Constitution.
However, there is a conflicting judgment: in 2018, the Bombay High Court ruled differently in Sachin Vijay Desai v. Union of India & Ors.
As of now, the Supreme Court has not ruled on this matter, leaving it open to interpretation. A clarification by the PF authorities on this aspect will be helpful.
These policy changes undoubtedly increase the flexibility and accessibility of EPF funds. However, members must act judiciously, considering the long-term impact on their retirement corpus and the tax implications of early withdrawals.
While the changes are progressive in nature, their effectiveness will depend on how responsibly members use these facilities. As with any financial benefit, discipline, awareness, and informed decision-making are key.
(Views are personal; the author is Partner, Mainstay Tax Advisors)