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The government has now amended rules for PPF accounts and NRIs. Read this to find out how it could affect your finances

NRIs will no longer qualify to invest in Public Provident Fund

NRIs will no longer qualify to invest in Public Provident Fund


Summary - The government has now amended rules for PPF for NRIs. Read this to find out how it could affect your finances


The government recently announced that Public Provident Fund (PPF) accounts would be closed if account holders acquire a personal status as Non-Resident Indians (NRIs). 


According to the latest rules, an individual’s PPF account will be closed before it matures the day the investor becomes an NRI.


Additionally, the PPF account for NRIs will only earn a 4% interest rate, as opposed to the current interest rate which is almost double the number. This interest rate will come into effect on the day the PPF account for an NRI is deemed closed and will be paid until the last day of the month, which precedes the account’s closure. 


All post office saving accounts held by NRIs will also attract the same interest rate.


Related: Comparison of PPF and life insurance: Which comes first?


National Saving Certificates to be encashed


A separate notification on National Saving Certificates (NSC) said, “The certificate will be encashed, or deemed to be encashed on the day he becomes non-resident.”


The notification also stated that “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 encashed.”


Related: Why December is the most important month for Tax Payers


Can NRIs open a PPF account?


Since April 2016, interest rates on small savings schemes have been declared by the government on a quarterly basis. In September 2017, the government retained the interest rate on PPF and NSC for three months (October to December) at 7.8%.


A rule in 2003 allowed NRIs to continue contributing to their PPF funds, provided the account was opened while the individual still had the status of an Indian citizen. The new rule, however, will disallow NRIs from opening a PPF account. Additionally, NRIs will not be able to invest in small savings schemes such as NSC, Monthly Income Schemes and other such schemes offered by the post office.


The move could also lend a massive blow to those who are planning to move out of India to another country.


What is the motive behind this move by the government? How does this impact the consumer, what should he do and when does this rule go into effect? Can NRIs continue to invest in PPF accounts that already exist?


Related: EPF members could soon withdraw 90% of PF for down payment of loans


Several personal finance advisors have explained that the interest rate cut will barely be capable of beating inflation. Hence, the advice to NRIs is to withdraw their PPF amounts (if their accounts have been closed), and invest them in other products that could offer better returns. 


Who is termed as NRI, as per the rule?


According to the Income Tax Act, if a person lives in India for 182 days or 60 days in a year, and 365 days in each of the preceding four years, he is considered to be an Indian resident. When a person does not satisfy these two conditions, he is termed an NRI.


 

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