It’s very clear that government is doing its best to reduce the subsidy liability and wants to bring everyone to “market-linked” umbrella. But NRI’s being the center of attraction, did not expect that they will not be allowed to share the benefits of PPF & NSC. Finally, a recent notification has ensured that NRIs do not avail the tax-free benefits of Public Provident Fund (PPF) & National Savings Scheme (NSC).
You know NRIs can vote. In fact, very soon the online voting system is being planned. But then also the present government which is somewhat like “fan” of NRIs has taken this step. Reason?- Go Ahead and read in this article.
The change is simple but will be hard on NRIs. But these are uncontrollable factors and one must think beyond what is bound to happen. NRIs have many options and they should continue investments for future.
|Updated Dated 25/02/2018: On 23rd Feb 2018, Government has stayed this ruling till further notice. Click to read this Office Memorandum.|
A quite circular on 3rd Oct 2017, rolled out the new changes. These rules will be called:
- Public Provident Fund (Amendment) Scheme, 2017
- National Savings Certificate (VIII-Issue) (Amendment) Rules, 2017
These will be effective Oct 3rd, 2017 & Retrospectively.
These rules will apply now to all NRIs.
Changes / Amendments in PPF
After 3Rd October
- An NRI cannot open a PPF Account.
- A resident becoming NRI if already has a PPF account, his account will be compulsory closed effective the day he acquires NR status.
- In the above case, the NRI is free to take his money back. If he does not, then he will only be paid savings bank interest from the day of account opening till he withdraws his balance. (As per circular, even if you have a PPF account in bank, the rate payable is post office savings bank account only)
Changes / Amendments in NSC
After 3Rd October
- An NRI cannot purchase NSC.
- A resident becoming NRI if already has an NSC, he needs to compulsory surrender NSC for payments. The certificate will be compulsory closed effective the day he acquires NR status.
- In the above case, the NRI is free to take his money back. If he does not, then he will only be paid post office savings bank interest from the day of issue of NSC till he withdraws his balance.
Currently both PPF & NSC earn 7.8% pa at the time of writing. These are changed or reviewed every quarterly.
- This investment will be deemed to be closed on the day the investors become Non-Resident.
- The objective behind this moves seems to be that they want to reduce their interest burden.
- NRIs who have inclination to spend retirement or latter years in India will have tough time planning retirement as one of the good product PPF will be out of reach.
- Many other avenues of investment remain open to NRIs wishing to invest in India Story. These include equity market, mutual funds, NPS, fixed deposits, and real estate (both residential and commercial, but not agriculture land).
What to do now?
- If you are in an industry (like IT, export or Merchant Navy etc) where you are likely to acquire NRI status soon, it is better not to open PPF account.
- If you are in a job or business where you have to travel abroad a lot including stays, it will be difficult to open and close PPF frequently. We are also waiting for clarity for such cases.
- If it is an uncertainty regarding your future career, go ahead and open while you are resident. A return of 7.8% fixed that to tax-free with Section 80C savings is a good option. But the moment you acquire non-resident status, contact bank/post office and close the account. The amount you get is tax-free and can be invested in other avenues using NRO a/c.
What Next? Other Avenues
- NRIs also get the benefit of FDs in NRE A/C which is tax-free. The money will move there especially who want to remain in Debt with fixed and known rate returns.
- One can look at NPS (Debt Funds), which is still an option opened to NRIs. But you have a long lock-in, market-related returns and 40% will only be refunded through a pension. If that suits you fine. Otherwise;
- Mutual Funds are the options open for NRIs with all tax benefits and minimum lock-ins.
The subsidy is a large part of any developing country’s balance sheet. You need to pay incentives so that people invest and money comes into system & markets.
But subsidy/sops should be time bound and prudent. These cannot be long-term measures. So despite Government knowing that NRI’s have voting right, they did a right thing by saving some money for the real needy ones.
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For the real investors, many options still open and India will give very handsome returns. No Doubt about that.
As of now, if you are going to be NRI soon, one more work is added to your checklist before moving. Close your PPF & surrender NSC Certificates.
Hope you liked the article on NRIs PPF NSC taxfree amendments changes 2017 and have a view on this move. Do share it below.
Also, forward this article to your NRI friends and relatives to tell them you care.