In Covid times, premature withdrawals from tax-saving deposits must be allowed

S Murlidharan | Updated on April 14, 2020

This will especially help the non-salaried, self-employed and small professionals to overcome the financial crunch engendered by corona

The tax ordinance promulgated on March 31, 2020, among other things, allowing one to make tax-oriented savings or investments on or before June 30, 2020, or such further extended time as may be provided for making the grade under these schemes was a welcome thaw from the rigidity of the March 31, 2020, deadline and straitjacket. Thus one can make a five-year deposit in a scheduled bank even after March 31, 2020, but on or before June 30, 2020, and yet qualify for deduction under Section 80C for the financial year 2019-20.

Ditto for post-office savings schemes such as Sukanya Samridhi Yojana, PPF, etc (https://www.financialexpress.com/money) though some of them have nothing to do with tax-savings.

The above are examples of a thaw in deposit rules. But what about thaw in premature withdrawals from such schemes? In these troubled times, thaw in withdrawals is more important than thaw in deposits given the fact that while deposits are outgoes, withdrawals are inflows. And yet there is not much to cheer about on this count insofar as official announcements are concerned. True, the government has allowed EPFO to allow provident fund subscribers to take non-refundable advance from their provident fund accounts though not at par with such advances for higher education of children, medical expenses of family members, wedding, buying of a house etc — only a maximum of three months’ contributions can be withdrawn.

But is this enough? What about premature withdrawals of money put into the five-year tax-saving deposits put in earlier years? Let us say a businessman puts the maximum allowed under section 80C, ₹1.50 lakh, in a five-year bank deposit every year. Thus he would be having a tidy sum of ₹7.50 lac blocked in such deposits. Can’t the government persuade the RBI to allow, to start with, at least one such deposit to be ‘broken’ prematurely?

And after waiting and watching, the government can mandate maybe the second round of such premature ‘breaking’ of such deposits. Here ‘deposits’ have been used liberally to mean every scheme whereunder one’s money is blocked for a given number of years. Thus the same liberal treatment must be accorded to one’s money blocked in National Savings Certificates (NSC) etc.

Similarly there should be a thaw in the rigidity of public provident fund (PPF) rules to allow its members, many of whom are non-salaried persons, to withdraw prematurely from their accounts to overcome financial crunch engendered by corona. It is surprising that the government while permitting such premature withdrawals from PF simultaneously did not allow such withdrawals from PPF.

The truth is in these troubled times self-employed persons like shopkeepers and small professionals are more affected financially. It makes sense to be liberal with allowing one to withdraw one’s own money prematurely in these troubled times rather than allowing the cash crunch to fester, necessitating doles or loan melas where caution is cast to winds while extending loans.

Fixed deposits too

Apart from tax-oriented schemes, banks should be asked to ungrudgingly allow premature breaking of fixed deposits generally without imposing penalty for premature withdrawals. To call upon NBFCs to do the same would be difficult because they would cite their own hardships to excuse themselves from easing depositors’ hardships. Big companies such as ITC which attract considerable fixed deposits must show large heart and allow premature withdrawals of such deposits ungrudgingly — that is, without imposing any penalty.

And there is an elephant in the room — gold and jewellery. If the corona crisis worsens resulting in a more widespread cash crunch, our village folks would be the first to unlock their investments in the yellow metal. The government must put in place a mechanism to ensure that our benighted rural folks are not cheated by moneylenders and goldsmiths. SBI with its omnipresence should be mandated to buy at a fair price.

The short point is people naturally would try to exhaust all the avenues to unlock their own investments be they in FDs or gold in these troubled times. Path must be paved to remove all blocks.

The writer is a Chennai-based chartered accountant

Published on April 13, 2020

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