How often do you wonder that the assets you have accumulated can easily slip away from your hands in the event of an emergency? Your lender can stake a claim to your assets to recover dues in case you find yourself in a financial logjam. For instance, if you default on a loan, the bank can stake a claim to your assets such as land, shares and mutual funds and use them to satisfy the debt. The bank does this through an attachment order by the court.
An attachment is a freezing order. Once an asset is attached, you cannot use it or sell it and this can deprive you of income support as you can’t liquidate these assets. To save investors from this, Parliament has placed various financial assets under special legal protection. These assets cannot be attached by any court in India. We tell you what these are.
Your Employees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS) balances are protected under Section 10 of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. The EPF balance is accumulated through employer and employee contributions for employees working in the organized sector—12% of your basic salary and dearness allowance is deducted towards EPF. It is considered an important element of social security and, hence, is given special legal protection.
Also, EPF provisions allow you to make withdrawals to tide over certain kind of emergencies.
Your Public Provident Fund (PPF) balance is protected under Section 14A of the Government Savings Banks Act, 1873. PPF is open to all Indian residents, whether in the organized or unorganized sector. You can make annual contributions ranging from ₹500 to ₹1.5 lakh.
Currently, PPF earns an interest of 8% and given its tax-friendly structure, it’s one of the highly recommended products for long-term debt allocation. Given its long-term nature, it can also be used for saving for retirement and, therefore, the legal protection it enjoys helps.
Your NPS (National Pension System) balance is protected under Section 6(a) of the Pension Fund Regulatory Authority of India (Exits and Withdrawals) Rules, 2015, except 25% of the accumulated balance. NPS, which is a retirement savings vehicle regulated by the Pension Fund Regulatory and Development Authority, is considered an important part of old-age security and, hence, is accorded immunity from attachment.
A life insurance policy on your own life is protected from attachment under Section 60 of the Code of Civil Procedure, 1908. In addition, a life insurance policy taken under Section 6(1) of the Married Women’s Property Act, 1874, enjoys a second layer of protection. Such a policy has your wife or children as beneficiaries and is legally considered their property. Unless creditors can prove that such a policy was taken with the intent to defraud creditors, such a policy cannot be attached.