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PPF Accounts for NRIs to be closed

PPF Accounts for NRIs to be closed

Select small savings schemes like Public Provident Fund (PPF) and National Saving Certificates (NSC) will not earn you the same rate if you become non-resident Indians (NRI). Under the new rules issued by the government, these investments will be deemed to be closed on the day the investor becomes a non-resident. Subsequently, the investor will be paid interest at the much lower post office savings account rate at 4% p.a, the government said in a notification. This is nearly half of what these investments earn at present. The amended rules were notified in the official gazette earlier this month.


Public Provident Fund (Amendment) Scheme, 2017

According to the amendment to the Public Provident Fund Act, 1968, "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 with effect from that date will be paid at the 4 per cent rate applicable to the post office savings account up to the last day of the month preceding the one in which the account is actually closed, the Public Provident Fund (Amendment) Scheme, 2017, said.


NSC is concerned, it is deemed to be en-cashed

As far as the NSC is concerned, it is deemed to be en-cashed on the day the holder becomes an NRI, according to the notification.
"interest shall be paid at the rate applicable to the post office savings account, from time to time, from such day and up to the last day of the month preceding the month in which it is actually en-cashed," it stated.

The government has kept interest rates on small savings schemes unchanged for the October-December quarter. The interest for both PPF and NSC schemes stands at 7.8% p.a for October-December. Since April last year, interest rates on all small saving schemes are declared on a on a quarterly basis.


Person doesn't satisfy these conditions, he is termed as NRI

A person is considered resident in India if he is in the country for 182 days or 60 days in a year and 365 days in each of the preceding four years as per Income Tax Act. When a person doesn't satisfy both these conditions, he is termed as NRI.

As per the latest rules, NRIs cannot open a new PPF account in India. But they were allowed to keep contributing to their existing PPF accounts as per a 2003 notification. This was for the PPF account they opened prior to becoming NRIs. AS per the latest Public Provident Fund (Amendment) Scheme, 2017 even existing account holders for NRI would be closed going forward.

PPF, NSC account closure?
Here is what NRIs should do

The returns on the PPF, NSC accumulation will not even beat inflation and hence it is advisable to opt for better alternatives. If your residency status has changed to a non-resident Indian, your Public Provident Fund (PPF) and National Savings Certificate (NSC) accounts will now be deemed to be closed. Your PPF accumulation in such case will earn you a meager 4 per cent, while the NSC will earn you the rate given in post office savings account. Both PPF and NSC give interest income of 7.8 per cent interest at present.


What should NRI’s DO

So, what should NRI’s who have PPF and NSC accounts do now with their corpus in these small savings accounts? Personal finance advisors feel the money should be withdrawn and invested in instruments that promise to give you better returns.

“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.
Rahul Agarwal, Director Wealth Discovery agrees. “The accumulation in these accounts should be shifted to investment products which offer better returns,” he said.


What the Experts say?

Personal finance advisers say among the issues to consider is whether the NRI would want to eventually settle in India or abroad, reputability of Indian investments and the laws relating to taxation in the country where they are residing.

Anil Rego, CEO, Right Horizons, says if an NRI has plans to return to India and wants to have a retirement corpus back home, then they should consider investing in the National Pension System (NPS). “If you plan to come back to India in the long-term and your retirement needs are unmet, you should consider NPS as an alternative. NPS gives you different fund options depending on your risk-appetite. The returns in NPS will be higher compared returns in any investments in developed markets,” Rego said.


NPS to build a solid Retirement Corpus through a combination of Equity and Debt

However, he says that the considerations would be different for NRIs in different countries. “If an NRI in the US is unsure of future plans and could settle down there after retirement, NPS will not make sense. They will have to disclose the investment and the annuity under FATCA. If you are an NRI in Gulf countries, you should consider NPS in any which way since they are not subjected to any kind of tax. NPS is best for NRIs in Gulf countries because such NRIs don't have great option to settle in those countries after retirement. Since they will come back to India after 25-30 years of working life, use NPS to build a solid retirement corpus through a combination of equity and debt,” Rego said.


Repartriability of funds is another Issue..

Repartriability of funds is another issue that NRIs should consider, says Rahul Agarwal. “Before talking about retirement options, it is important to first analyse if the repatriability of invested funds. If the NRI plans to comeback to India in the future he/she can opt for non-repatriable products whereas if that’s not the case only repatriable investment options should be considered. Once the issue of repatriability is settled the investor should analyse the risk tolerance and opt for products that suits his/her needs,” Agarwal said.

Agarwal said NRIs who would have accumulation in their PPF/NSC accounts can consider equity and debt mutual funds to park their funds, besides other safe options such as government securities.