PPF has been a Darling product for all investors. Even NRIs prefer to continue with their PPF accounts until the time they can, as the product earns them tax-free and safe interest. Even National saving Certificate also is considered a safe and preferred investment by many.
If you are an NRI, then you must be aware of the fact that you cannot open a new PPF account, or invest in National savings certificate. But this was also true that if you had a PPF account or NSC certificate before you become an NRI, then as per PPF account rules and NSC conditions you were allowed to continue with the same till their maturity. Right?
(Read: All you want to know about Public Provident fund)
On 3rd October 2017, Finance ministry in central government has come up with a quiet notification which will force all NRIs to come out of their small saving investments. Yes. Due to the changes, these small saving schemes have lost all their attraction for NRIs.
Before getting in the notification details, let me first brief you about the ppf account rules and NSC rules for NRIs, which used to be there before 3rd October 2017
With Notification dated 23rd Feb 2018, (https://dea.gov.in/sites/default/files/NRI.pdf) Ministry of Finance has held up the changes in PPF account rules for NRIs.
PPF account rules & NSC rules for NRIs (Before 3rd October 2017)
- NRIs were not allowed to open a new PPF account neither they can make new NSC Investment.
- If a resident having PPF account or a National savings certificate, has become a Non-Resident, then he is allowed to continue with the respective account till the maturity.
- If the PPF account was in an extended status, means the investor has already extended his PPF account for 5 years, and later become the NRI, in this case also the investor is allowed to continue the PPF account. But he will not be able to extend the account further for another block of 5 years.
- In both, the above cases NRI was permitted to make a regular contribution to the maximum limit and keep earning tax-free interest like resident investors.
- On maturity of PPF account and NSC, NRIs have to compulsorily close the account.
(Also Read: PPF Withdrawal Rules and Premature closure guidelines)
All small saving schemes are governed by the government of India, even the Interest payments are also the responsibility of the Indian Government. This provides the necessary security to the investments, as these products have sovereign backing, which is one of the many reasons Indians even NRIs prefer to continue with the small saving schemes like PPF.
But practically these are meant for small investors where the government wants to support and encourage them to save for their future. Since India does not have any kind of social security arrangements so government prefers to support these sections through subsidies and a bit higher interest on saving schemes.
Now since there’s no Restriction on the type of investor (Except NRIs, who are assumed to be of the privileged segment) who can get into such schemes, so these schemes is kind of open for everyone. And because of its tax-free interest feature, compounded annually attractive interest rates, and section 80C tax benefit, PPF has become the first choice for every investor.
Lately, with the coming down of market interest rates, the government starts feeling the heat of high-interest payout which it was paying on these small saving schemes. So they linked the PPF interest rates and other small saving schemes with the government securities rates.
Nowadays the small savings interest rates are reviewed and announced quarterly, so it should remain in line with the market rates and should not prove a burden to government pockets.
The Amendments announced on 3rd October ‘2017, can also be considered as one of the reasons, that government has exercised to reduce the Interest burden and ease out their pockets.
Let me explain to you what these announcements were and how these are going to impact the NRI Investors.
Government came up with 2 notifications, called as
- Public Provident Fund (Amendment) Scheme, 2017
- National Savings Certificate (VIII-Issue) (Amendment) Rules, 2017
These notifications modified the PPF account rules and NSC rules, and directly impact NRI investments in these 2 small saving schemes.
As per these notifications, NRIs are not allowed to continue with their ongoing PPF and NSC investments and w.e.f. the date of notification these account stands closed.
Referring to the rules as mentioned in the pointers above, the ppf account rules and NSC rules after amendment are as below.
PPF account rules and NSC rules for NRIs (after 3rd October 2017)
- Though NRIs still can’t open a fresh account, now NRIs cannot even continue with their ongoing PPF and NSC accounts, which they were earlier allowed to continue till the maturity. All accounts in the name of NRIs stands closed on 3rd October 2017
- All NRI PPF and NSC accounts will earn the PPF interest rates until the date of notification i.e. 3rd October, but after that will earn Post office savings bank rate till the time money is completely withdrawn. Please note NRIs are now free to withdraw their money.
- For the “To be NRIs”, if they have PPF or NSC investments, their account will automatically be closed or deemed to be closed the time their residential status changes from Resident to Non Resident, and they will get Post office savings bank rate on their deposit from the day they become NRI till the money is withdrawn.
(You may also Like: 8 important PPF rules every investor must know)
New PPF account rules: What should NRIs do now?
PPF account rules (Amendment 2017) and NSC Amendment Rules 2017, has completely changed the small scheme investments scenario for NRI Investors.
For old investors – You have no other option, but to get your money back and invest in other suitable Instruments. The more you delay the more you will lose on the interest income, as now your money is earning Savings bank rate.
You must have an idea on Mutual funds, NRE deposits which can get you Tax-free income. Start exploring yourself or consult a Financial Planner
For new Investors – If you have plans to move abroad due to Job or business reasons, which may change your Tax residency status, then better not to get into small saving schemes. There are other Investment options too which you can try for your long and short-term goals.
I opened my PPF account in 2010 and became an NRI in 2014. Now we are settling India on dec end that means i will be no more NRI. so what will happen with my current PPF account do i need to close the account or i can continue now as it is.
Please throw some light
I guess as per the new rules, PPF accounts for NRIs are already deemed to be closed since the date of notification and I believe you won’t be able to continue with it after coming back. You will have to open a fresh account.
Still, since this is a new thing and practicalities have yet to be seen, so the picture will be cleared once you are back in December. By the way from IT perspective till 31st March 2018 you will remain NRI as you may not complete total 182 days of stay in India till then.
I recently spoke to ministry of finance, Govt of India to one of the under secretaries. It was confirmed that the government of India has already decided to withdraw the PPF notification for NRIs and they will be able to continue the contributions to PPF as before. Hope the same comes soon. I think NRIs should not rush to close their PPF accounts and loose their money. Also SBI has confirmed that the notification actually gives a retrospective effect to the new rules , which means you loose PPF rate of interest ever since you become an NRI. In my case I became an NRI 10 years back and so I loose interest from 2007, which is ridiculous. I would therfore wait and see what happens.
Thanks for sharing Jabir. Please keep us posted if you get any more information on this.
I recently visited India and met the manager of my bank where I have my ppf account. Though he was aware of the notification, he could not close my account as the bank had not been intimated formally. Has anyone got a similar experience and has anyone been able to close their ppf account.
At least no case is in my knowledge
I opened a PPF account in 1999, became NRI in 2002. Maturity was in 2014 but extended that to 2019. How will my interest be calculated.
Till 3/oct 2017 you keep earning the PPF rates but afterwards the savings bank rate
When the ppf Account was opened, the rules in force at that time, did not specify that in future if the Account Holder becomes NRI then his account shall be closed before date of maturity, and he will earn interest @ post office savings Bank. The rules are amended arbitrarily. The Account Holders should join hands and should be file a Writ Petition against the Government of India for the breach of contract/trust committed by the Government of India.
I have extended my ppf in aril 2019. Iintend to take PR OF canda I sept 2020 .but are the options for me
Additional Query: what is the possible solutions for me or to inform
Since you have already extended your PPF before obtaining the PR of Canada, then you may continue it till maturity. But you cannot extend it further, once you take the PR of Canada.