Public Provident Fund (PPF) and National Savings Scheme (NSC) are amongst popular investments tools for many Indians. They make for attractive investment options as the returns are safe and they fall under Section 80C of the Income Tax Act.
Both the schemes are available only for Indian residents and NRIs cannot invest in small savings schemes like NSC and PPF. However, the government had earlier allowed the NRIs to retain their PPF or NSC accounts till maturity if they have opened it before becoming an NRI. The Government of India recently has made an amendment to the rules concerning PPF and NSC for Non-Resident Indians.
Let us take a look at the changes or amendments made to the rules concerning PPF or NSC for NRIs.
Let's us first discuss the rules before the amendment came into force.
PPF for NRIs: NRIs are not allowed to open a PPF account. But, a resident Indian who turns an NRI during the tenure of the account can continue to avail its benefits till maturity. But the NRI cannot extend the account for a block of five years.
NSC for NRIs: NRIs cannot invest in NSCs. However, a resident Indian who turns NRI during the tenure of the instrument is eligible to avail the benefits till maturity of the certificate on a non-repatriation basis.
However, the amendment to the rules governing NSC and PPF for NRIs has made a major change to the old regulations.
What does the 2017 Amendment Rule say?
PPF for NRIs: The new notification says that "if a resident who opened an account under this scheme, subsequently becomes a non Resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes a non-resident..."
In short, as per the new amendment rule, NRIs cannot avail the benefits of PPF till maturity. The account will be closed as soon as his status changes from Resident Indian to NRI.
NSC for NRIs: The new notification says, "Provided that if a resident who purchased the certificate, subsequently becomes a non Resident during the currency of the maturity period, the certificate shall be encashed or deemed to be encashed on the day he becomes a non-Resident..."
For NSCs as well, NRIs will not be able to avail the benefits till maturity of the certificate. It will cease to exist once his status changes from Resident Indian to NRI.
What About Interest?
The notification says that for both PPF and NSC for NRIs "interest shall be paid at the rate applicable to the Post Office Saving Account, from time to time, from such day and up to the last day of the month preceding the month in which it is actually closed/encashed."
Let us understand this with an example:
Mr 'A' holds an NSC or PPF account. But he turns NRI on October 31, 2017. Both NSC and PPF will cease to exist. Let us assume that Post Office Savings Account interest rate for the month of September was 3%. Then his NSC and PPF will earn 3% interest from October 31, 2017.
Earlier, the change in status did not affect NSC or PPF for NRIs as they were able to avail the benefit till maturity. NSC will be encashed on the day the holder becomes an NRI, while PPF account will be closed if the account holder changes his resident status.
This new amendment would not allow NRIs to make an investment for retirement and secure their future as both NSC and PPF will cease to exist once their status change from Resident Indians to NRIs. It would be wise to withdraw their corpus in these schemes and put them in better-returning instruments.
Since April 2016, the interest rates of small saving schemes were recalibrating on a quarterly basis, except the Oct-Dec quarter of this year. The interest rate for both PPF and NSC schemes is pegged at 7.8% interest for October-December 2017.
(Contributed by Bank Bazaar).