NSC, PPF Accounts to be Closed for NRIs

The Public Provident Fund (PPF) schemes of Indians who become non-residents of the country will be closed before maturity, according to a recent amendment by the government of India. The National Savings Certificates (NSC) will also be “encashed or deemed encashed” in a similar circumstance.

According to the amendment to the Public Provident Fund Scheme, 1968, notified in the official gazette earlier this month, “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 becomes a non-resident.”

Interest will be paid at the rate applicable to Post Office savings accounts till the date the PPF account is closed. The  Post Office savings account fetch interest rate of 4 per cent, which is almost half of that for PPF, at present.

In light of the new development, financial advisers say NRIs should look for alternate instruments of investment after withdrawing the money.

“The accumulation in PPF/NSC can be withdrawn. The returns will not even beat inflation and hence it is advisable to opt for better alternatives,” S Sridharan, Business Head, Financial Planning, Wealth Ladder Investment Advisors, told Moneycontrol.

NRIs planning to eventually return to India can consider investing in the National Pension System (NPS). The option is especially advisable for Indian citizens living in the Gulf countries, where they are not subjected to tax.

The PPF is a tax-free savings tool that was created in 1968 by the Ministry of Finance to encourage people to save money. Normally, the entire amount can be withdrawn only on maturity, which takes place at the end of the 15th year but partial withdrawals can be made. Loans can also be taken against the PPF. The interest earned is also tax-free.

The NSC also works on a similar line, but the maturity period is shorter.

The interest rates on small savings schemes have been kept unchanged by the government for the October-December quarter. The interest for both PPF and NSC schemes remains 7.8 per cent per annum for October-December. Since April last year, interest rates on all small saving schemes are announced on a on a quarterly basis.

The new amendment is in line with the policy that NRIs can’t hold the NSC, PPF, Monthly Income Schemes or other timed deposits that the post office offers. As per a 2003 notification, they were allowed to keep contributing to the existing PPF accounts that they opened before becoming NRIs.