According to the new rules brought in by the DEA, NRI investors looking to invest in NSC and PPF may have to rethink their investment plans. What’s the update? Let’s find out.
Public Provident Fund (PPF) and National Savings Scheme (NSC) are amongst the most popular investments in India. They owe their popularity to their risk-free nature and immense tax-saving capabilities.
According to an amendment brought to the investment rules in 2017 by the Department of Economic Affairs (DEA), residents who subsequently turned NRIs would have to forfeit their PPF and NSC accounts. However (and thankfully), the DEA released a memo in February 2018 and dismissed the amendments made earlier. According to the current rules, NRIs can continue to invest in their PPF and NSC accounts until maturity.
Interest Rates
The October 2017 ruling had brought down the interest earned by NRIs. They were eligible for only 4% per annum from their PPF corpus until they withdrew it. The new ruling restored the interest rate (current rate is 7.6%).
Additional Reading: All About The Public Provident Fund (PPF) Scheme
Tax Liabilities
Under the Income Tax Act, any amount received from PPF is completely exempted from tax liabilities in India.
Account Opening
According to the present rule, NRIs can continue to invest in their existing accounts until maturity. However, it’s important to note that NRIs cannot open new PPF or NSC accounts.
Additional Reading: Can An NRI Buy Property In India?
Extension
Extension of PPF period beyond maturity is only available to the Indian residents. NRIs can stay invested until maturity, but they cannot extend their investments beyond that. Indian residents can, however, extend their PPF investment period by blocks of 5 years even after maturity.
| Particulars | Old Rule (2017) | Present Rule (2018) |
| Opening A New Account | No | No |
| Continue Investments Until Maturity | No | Yes |
| Claim Interest | Limited Claim | Full Claim |
| Tax Liabilities | No | No |
PPF Investments For An NRI In A Nutshell
- An NRI cannot open a new PPF or NSC account.
- Extension of PPF account by 5 years on maturity is not available to NRIs.
- NRIs can invest up to Rs 1.5 lakh per year.
- One can make investments using the NRE or NRO account.
Additional Reading: Investment Options In India For NRIs
Who Is An NRI?
Interestingly, the term ‘NRI’ has not been clearly defined under the tax laws. Currently, the period of stay in India is used to determine the eligibility for NRIs. The period of stay is counted for each financial year beginning from 1st April to 31st March.
Resident
An individual is classified as a resident of India if he/she is in India for at least 182 days in that year or at least 365 days during four years preceding that year and at least 60 days in that year. An individual who doesn’t meet these conditions is as “non-resident” in that previous year.
The Foreign Exchange Management Act (FEMA) defines a non-resident Indian as an Indian citizen residing outside of India.
Way Ahead
If you are an NRI, you can continue your investments in PPF or NSC accounts without any hassle. However, do keep in mind, you will not be allowed to extend your investments after the maturity period is over. For those who are investing in Indian markets, your options are wide and limitless. If you really want to take advantage of India’s robust growth story, consider exploring Mutual Funds.