PPF and NSC are the most popular long-term saving instruments in India. The amount invested in these instruments is eligible for deduction up to Rs 150,000 under section 80C along with other eligible investments.
The Govt. of India has recently revised investment rules relating to the investments by the Non-Resident Indians (NRIs) in the select Small Savings Schemes – PPF (Public Provident Fund) and NSC (National Savings Certificates).
As per the new amendment done to PPF Act, “account holders of the Public Provident Fund (PPF) account shall be deemed to be closed the day their residential status changes to NRI.”
Latest update (23-Feb-2018) : The Govt’s notification dated 3-Oct-2017, regarding closure of PPF accounts held by NRI has now been put on hold. The Govt has issued a latest notification on this as below. So, NRIs who currently hold PPF accounts can continue their investments in PPF accounts until further notice (if any). As per the new notification it has been simply been put on hold.
A separate notification has also been issued in respect of the National Savings Certificate (NSC), which states that an NSC is deemed to be encashed on the day when holder becomes an NRI.
Who is considered as an NRI? – A person is considered resident in India, if he is in the country for 182 days (or) 60 days in a year and 365 days in each of the preceding four years as per Income Tax Act. When a person doesn’t satisfy both these conditions, he/she is termed as NRI.
(Related Article : ‘How to know your Residential Status? Online Residential Status Calculator‘)
If your Residential status is NRI and you have made investments in PPF and/or NSCs then you need to be aware of the below revised rules.
Latest NSC & PPF rules for NRIs
NRI investments in PPF
- Existing rule : NRIs cannot open a new PPF account in India. However, they were allowed to keep contributing to their existing PPF accounts as per a 2003 notification. This was for the PPF account they opened prior to becoming NRIs.
- New rule : “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/she becomes a non-resident. Interest with effect from that date will be paid at the rate applicable to the post office savings account up to the last day of the month preceding the one in which the account is actually closed.”
- When you become a Non-resident Indian, your PPF account would be deemed closed.
- From the date you become NRI, your PPF would not earn the regular interest rate (current prevailing interest rate on PPF is 7.8%). Do note that the deposits earn regular interest rate till you turn NRI.
- Subsequently, until you actually close the account, your PPF deposits would earn the interest rate of post office saving account only. The current interest rate of PO savings account is 4%.
- For example : Let’s say as a Resident Indian you have have been contributing to PPF scheme. Your residential status has been recently changed to NRI in October 2017. As per the latest PPF Act amendment, your PPF a/c is deemed to be closed in Oct 2017 and your PPF a/c earns 4% as rate of interest on the total accumulation, until the time you actually close the account. (Read : ‘Latest Post office Small Savings Schemes Interest rates for FY 2017-18‘)
Below circular clearly states that this new amendment is not applicable retrospectively. (My sincere thanks to one of my blog readers, Mr Kesavan, for emailing me this circular.)
NRI investments in NSCs
- Existing rule : NRIs can not invest in any of the Small Saving Schemes like NSCs, KVP, SSA etc., However they were allowed to continue with their existing investments in NSCs till the maturity date.
- New rule : It is deemed to be encashed on the day the holder becomes an NRI. Until the time you actually encash NSC certificate, the accumulated money will earn interest at a lower rate, as applicable to Post office Savings Account (which is currently 4% p.a.).
How an NRI can close PPF account?
In case, you are in a foreign country and would like to close your PPF account now, below is the procedure to withdraw funds from PPF account ;
- You need to complete PPF withdrawal form (Form C) and arrange for your KYC Documents (like copy of ID & address proof, cancelled cheque etc.,).
- Along with the above documents, you need to enclose an authorization letter stating that you are allowing your person (relative/friend) to submit the withdrawal forms on your behalf. Post all these documents to your representative.
- Your person has to visit the bank where you have NRE/NRO account. They have to get all the documents attested by the bank official (especially the authority letter). He/she can also get these documents attested by a gazette officer.
- After attestation is done, then your representative can visit the PSU bank for PPF withdrawal.
The above latest amendments will surely impact a large number of NRIs who have made investments in PPF/NSCs. The amendment indicates that such accounts may need to be closed / encashed. Once you return to India and become Resident Indians, you can open a fresh PPF account. (As of now, there is no clarity on whether these deemed to be closed accounts can be revived or not.)
So, what should NRI’s who have PPF and NSC accounts do now with their accumulated corpus? – I believe that NRIs should withdraw their funds in PFF/NSCs immediately (or during their next visit to India) and invest in other suitable/better investment avenues. As an NRI, before you consider any other investment alternative, suggest you to kindly know the current tax rules that are prevailing both in India and foreign country (especially rules related to ‘repatriation’).
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(Post published on : 31-October-2017)