The coronavirus outbreak has put a lot of people in a tricky spot. Several companies have been forced to put salaries on hold while those who were self-employed have no source of income left with most businesses shut during lockdown. This has left people with no option but to dig into their investments. Many employees are now withdrawing from their Public Provident Fund (PPF) and Employees’ Provident Fund (EPF) accounts. 

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Both savings schemes are helping people pay their EMIs or meet any other immediate financial needs. While you may have no other option but to withdraw money from them, it is important to know the tax implication of making partial withdrawal from these instruments.

PPF and EPF Tax implications 

Both the schemes fall under exempt-exempt-exempt (EEE) tax regime. This means that investments made in PPF and EPF in a financial year, interest earned on the savings and maturity benefits are exempt from tax. 

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The Public Provident Fund is a long term investment option with a lock-in period of 15 years. It allows investors to make tax-free partial withdrawal after expiry of five years. The maximum partial withdrawal that can be made is 50% of the balance standing at end of the fourth year. The investors can also prematurely close their account and withdraw all the balance after five years of contribution in case of emergencies like for treatment of life-threatening diseases. This amount will not be taxable.

Meanwhile, EPF also allows you to make tax-free partial withdrawals after five years for different purposes as mentioned by EPFO. The investors can also make partial withdrawal before five years in case of several cases including a medical emergency. During the coronavirus crisis, the government has allowed tax-free partial withdrawal/ advance from EPF account for up to three months’ basic and dearness allowance or 75% of the balance in the account, whichever is lower.