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?
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.
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.
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.
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.