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Corona Times-Relief Measures that can be adopted-India Perspective

The salaried class constitute a major part of the tax payers’ contribution. They are also likely to take a major hit owing to the lockdown. The associated cost would definitely leave a hole in the pocket and it would take months to get back on track. The government may take some time to announce relief with the focus right now on containing the spread of the virus. The waiver of EMI for 3 months has come about as a breather for many as part of initiatives taken to ease cash flow. Let us take a look at some of the options that could be taken to tide over the crisis.

Partial Payouts from Tax saving Fixed Deposits: Investments in Tax saving fixed deposits come with a lock in period of 5 years. Partial withdrawals to the certain extent can be allowed. While a redemption in ELSS funds are market dependent and may leave a likely loss to the customer in the current scenario, the payouts from the Tax saving Fixed deposits to a large extent can help the customer since the funds are not in negative horizon.

Payouts from the Insurance paid

Insurance is supposed to hedge risk. In the current scenario, the guidelines may be relaxed so as to ensure a partial amount can be withdrawn to attend to the essential needs.

Withdrawal from Public Provident Fund Accounts and Pension Funds

Hitherto the scheme permits partial withdrawal from year 7, i.e., upon completion of 6 years. An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year.  Further, withdrawals can be made only once in a financial year.

It is therefore a relief to note that the Government has permitted non-refundable withdrawal not exceeding the basic wages and dearness allowance for three months or up to 75 per cent of the amount standing to the credit of their EPF account, whichever is less,

Withdrawal from Pension funds like NPS may also be permitted so that the individual stands to benefit. Parameters like the amount already paid and also the remaining term can be accounted and suitable guidelines can be incorporated.

All the above measures are pertaining to the schemes where the individual savings are involved and doesn’t involve borrowing additionally. Also, the means by which a person needs to have access to the funds needs to be in the simplest form possible and not involve one running from pillar to post.

Following are some of the proactive measures that the Government can take to ease the burden

Reduction in GST

Essential and core products need to be identified and the associated GST can be reduced and the benefits therof can be passed on the end customer.

Relaxation of Cess on Tax Levied

The cess imposed can be relaxed for the next few quarters months. The amount may be relatively small, but the benefit can be long term.

The rapid spread of the pandemic has also caused a mayhem worldwide. For a person who is fighting the virus, these small but effective measures would ensure that the money-crunch be the last thing that he/she needs to worry about.



Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 31 March, 2020, 12:19Be the first to give this comment the thumbs up 0 likes

All agreed but, in one of the best examples of a customer-centric product design ethos adopted by the Indian banking industry, FDs can be broken in India at any time, unlike even Savings Accounts in many other countries. Just that premature withdrawal from FDs attracts a 1% point penal interest on the entire FD amount (even if only part of it is prematurely withdrawn).

So, people who need cash and have FDs, go ye forth and break your FDs. It has always been allowed in India. 

That said, I can think of two areas of relief that reliefs that the government can provide under the present Covid-19 circumstances: (1) Waive the aforementioned 1%% penal interest (2) If that's not possible, levy it only on the prematurely withdrawn amount. As things stand, if you have an INR 5L FD and need only INR 2L, you break the entire FD, redeposit INR 3L and incur the penal interest on the entire INR 5L. Under my proposal, the govt should slap the penal interest only on the prematurely withdrawn amount of INR 2L. 

Uma Pasupathy
Uma Pasupathy - Edgeverve - Bangalore 01 April, 2020, 06:34Be the first to give this comment the thumbs up 0 likes

Agreed Mr Swaminathan. The penal interest associated with Fd closure can be waived by the banks,

The preclosure of normal fds can be by the individual. I was referring to pre/part closure of Tax saver fds which are regulatory in nature and currently have 5 year lock in period. If the lock in period can be lifted, it may definitely help one.

Many thanks for your inputs, definitely a right move

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