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Latest NSC & PPF rules for Non-Resident Indians (NRIs) | New Amendments to PPF Act & NSC

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.

Below is the Flow chart to know if you are an NRI or Resident. (Kindly click on the image to download the flowchart.)

(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’).

Continue reading :

(Post published on : 31-October-2017)

This post was last modified on July 11, 2023 9:43 pm

Sreekanth Reddy

Sreekanth is the Man behind ReLakhs.com. He is an Independent Certified Financial Planner (CFP), engaged in blogging & property consultancy for the last 14 years through his firm ReLakhs Financial Services . He is not associated with any Financial product / service provider. The main aim of his blog is to "help investors take informed financial decisions." "Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. The information provided, therefore, should not be viewed as financial, legal, accounting, tax or investment advice."

View Comments

  • Hi Sreekanth,

    I am NRI.I have opened PPF account in 2016 on my name.As per new rules,now if I closed PPF account.My wife is staying in India.Can I open PPF account on my wife name ?

    • Dear Shabbir,
      As you are an NRI, I believe that you can not open a new account in your spouse's name.

      • Dear Sreekanth.Thanks for the reply.

        My wife is not NRI.She is staying in India.I have a query,correct me if I am wrong.
        If I am NRI,the NRI status is applicable only for me not for entire family.As my wife continue to stay in India,she will not become NRI.Hence how my wife can not open PPF account on her name ?

        • Dear Shabbir,
          As your original query was - 'Can I open PPF account on my wife name ?' Hence replied that you can not open PPF ac.
          However, if your spouse is a Resident Indian, she can open PPF account.

  • Dear Sir,
    I now am in possession of canadian PR and will be leaving the country for good in march. Will i be eligible for withdrawal? I don't intend to come back.
    Please advise

  • Hi Sreekanth,
    Thanks for very information article and question/answers. Most of my queries are covered. However, I need following clarifications:
    1) Any update on applicablity of date of PO interest - Date of becoming NRI or Date of Gazatte notification
    2) Whether, the PPF contribution made in April 2017 will qualify for the deduction under 80C for filing income tax return for AY2018-19 by NRI for the income from property in India.

    • Dear Hitesh,
      1 - I believe that this notification is not retrospective, checked this with few CAs too, they are also of the same view. So, date of Gazette notification is to be considered for calculation of PO savings interest rate.
      2 - It should be , as during that period, NRIs can contribute to existing PPF accounts.

  • Dear Sir,
    I am an NRI, who is staying in abroad from 2000. I have invested in NSC & KVS certificates in India which will mature by next year.
    Now I need to close immediately OR wait to mature ??

    Any idea on this?

    PATIL

    • Dear Keshav,
      As of now, this notification is applicable to PPF & NSCs only.
      You may close NSC after checking with your PO branch.

  • Hi Sreekanth,

    If I became NRI in 2007 and I go to close my PPF account say on 30th November. Please clarify that the bank will credit interest @ 4 % only for the period 3/10/17 till 30/11/17 and not from 2007 when I became NRI. From 2007 till 3/10/17 bank will not recalculate the interest rate to 4 % ! Thanks for your help.

      • Thanks Sreekanth. I contacted my bank where me and my wife have PPF account. They said that they have read in the news paper about the new notification but they have got no official letter from RBI in this regard. Hence they cannot close our PPF accounts ! This is very frustrating now. Please advise what can be done. Thanks in advance for your kind help.

        • Dear Sunil,
          Suggest you to kindly wait for few days, I am sure your banker will receive the required guidelines on this!
          Also, I am confident this notification can't be made retrospective!

  • Hi Sreekanth,

    I opened PPF account in 1999 and it got closed naturally in APR 2014. I became NRI in 2006. When I approached bank today for closure of PPF account, they mentioned that, they will re-calculate interest from the period I became NRI, which is in 2006. Since the GOVT notifications is issued in Oct 2017, i believe post office interest should start from Sep 2017 (As per the notification). Is there any clarification available which makes it clear that bank should not recalculate earlier interest paid and updated in passbook but align interest rates to post office interest rates from Sep 2017 only. What should I share with the bank to make it clear. Will it require govt clarification?

    • Dear Sanjay,
      As per old rules, till Sep 2017, NRIs were allowed to contribute to existing PPF accounts and the regular applicable rates are payable.
      If a resident Indian turns NRI then savings bank rate is payable from Oct 2017 only as the account is deemed to be closed, till Sep 2017, ideally ppf rates are payable.

      " Technically saving account interest rate of 4% should be applicable only from 3rd October 2017 as the notification is not retrospective."

      But there are conflicting views on this, we may have to wait for few more days until the govt/CBDT clarified on whether the rules are applicable retrospectively or not..

      If this is applied retrospectively - So, if someone has left the country say 8 years ago, his/her PPF a/c will be treated as closed retrospectively, and he will be paid PO savings bank rate only from the time he turned NRI. Then, how will the money be recovered from his account? as the normal PPF interest rate would have already been paid/accumulated. Will they deduct the interest from future interest payments??Or will bank/PO re-calculate the payments as being done in your case - definitely more clarity is required..

      • The Government of India rules and regulations are such that the left hand does not know what the right hand is doing. Normal citizens like us are stressed up as there is no clarity. Some govt department issues the rules to be followed with immediate effect whereas the implementation system is not in place. For example the banks do not know if they are allowed to close NRI PPF account as they have not received any formal communication from RBI. It is over a month now after the new rule was published in the gazzette !

  • Hi,

    My son is an NRI since 2013. he opened his PPF account in 2009.
    As per the new rule from when does the 4% interest apply? Is it from 3rd Oct 2017 when gazette was published or from Jan 2013 when he became a NRI.

    Kindly clarify

    regards
    Dsouza

    • Dear Mario..The 4% interest rate (PO savings ac rate) would be applicable from Oct 2017 till he actually closes the account

  • Hi,

    Thanks for such a good article , most of the important questions have been asked by other readers already. One more point - in PPF usually you can not withdraw before 5 years (lock-in period) in this case since Govt. is asking NRI's to get the account closed and giving prevailing interest rates till 2nd Oct 2017, do you see this payout/withdrawal going to have any tax implication due to closing account before serving lock-in period?

    //Amit Thapliyal

    • Dear Amit,
      As of now there is no clarity regarding this, but I believe that the payout should be tax-exempted.

  • As the amendment takes effect from the date of issue that is 3/10/17, please clarify and confirm that even though the status may have changed earlier, it would be deemed to be closed only on this date and does not have retrospective effect in respect of the current PPF accounts of NRIs.

    • Dear VEERARAGHAVAN.. Yes, I believe that the accounts are deemed to be closed w.e.f oct 2017 only, though the residential status might have changed to NRI before this date. Because, before this notification, NRIs were allowed to deposit in PPF/NSC and regular interest has been credited.

  • Hi Sreekanth,

    I live in Canada and is citizen of canada. I am nri since July 2003. Me and my wife has a ppf account in Ludhiana.
    I want to close both the accounts. Do I have to be in India to close both accounts?
    Is it possible to close the ppf account without visiting India?
    Please advise.

    Thanks

    Preet

    • Dear Preet,
      You may kindly check with your service provider.

      I believe that Govt should provide an online provision for NRIs who want to close the PPF accounts now..

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Sreekanth Reddy
Tags: Latest NSC PPF Rules for NRIsNRI investments in NSC & PPFPost office Saving SchemesSmall Savings Schemes
July 11, 2023

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