BackNRIs will not be able to continue their small savings investments
The Government of India has amended some of the rules relating to investing and holding of government-backed small savings schemes such as PPF and NSC
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The Government of India has amended some of the rules relating to investing and holding of government-backed small savings schemes such as Public Provident Fund (PPF) and National Savings Certificate (NSC). According to the new rules, such small-saving accounts will close the day account holder’s (or investor’s) residential status changes to a non-resident Indian (NRI). An NRI is a person residing outside India who is a citizen of India or a Person of Indian Origin (PIO).
Let’s read more about these amendments in the rules and what will happen to the investments in these schemes, once an investor’s status changes to NRI.
A central government notification dated 3 October 2017, which was published in the Gazette, states that, “Provided that if a resident who opened an account under this scheme (PPF), 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 a separate notification regarding NSC, it states that the investment in the certificates is deemed to be encashed on the day the holder becomes an NRI.
In another notification by the ministry of finance, dated 29 September 2017, PPF account holders were asked to link their account with Aadhaar. According to the notification, where Aadhaar number has not been assigned, the depositor shall submit proof of application of enrolment for Aadhaar. Not only the new investors, even those depositors under this scheme who have not given their Aadhaar number at the time of application for such deposit, shall submit their Aadhaar number to the Post Office Savings Bank or Accounts Office concerned, on or before 31December 2017.
You can withdraw the money once your status changes even if the full 15 years of the PPF’s tenure are not over. According to the notification, upon change in the status of the investor, which will eventually close the PPF and NSC account of the investor, the invested amount will earn, “Interest with effect from that date (change in status) shall be paid at the rate applicable to the Post Office Saving Account up to the last day of the month preceding the month in which the account is actually closed."
That means instead of the higher interest that these schemes would have fetched, post change in status, the investors would earn lower returns till maturity or withdrawal of the corpus.
Interest rates on small savings schemes have been calibrated on a quarterly basis since April 2016. For the current quarter, October-December 2017, interest rates on small savings schemes were kept unchanged from the previous quarter.
Thus currently, both PPF and NSC are earning an interest rate of 7.8% per annum during this quarter. Whereas, post office savings deposit account holder are earning 4% per annum.
Though NRIs will not be able to invest in PPF, NSC and a few of the other small savings schemes, there are various other investment avenues in which they can invest. For instance, an NRI can continue to invest in the National Pension System (NPS). However, if an NPS subscriber’s citizenship changes, and she is no longer an Indian, her NPS account would be closed.
However, many other avenues of investment remain open to NRIs wishing to invest in India. These include: equity market, mutual funds, fixed deposits, and real estate (both residential and commercial, but not agriculture land).
However, these investment are also subject to fulfilment of rules and regulations issued under the Foreign Exchange Management Act, 1999.
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