Are PPF and NSC for NRIs Redundant?
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Key Takeaways: Public Provident Funds (PPF) and National Savings Certificates (NSC) are popular savings schemes for many people in India. However, if you are an NRI, would these become redundant for you? Let us find out more about PPF and NSC rules.
PPF and NSC for Resident Indians
A PPF is a long-term investment which comes with a minimum 15-year tenure. It can be extended by 5 years in blocks. The interest earned is compounded annually and paid by the government. It is popular because of its exempt-exempt-exempt status. This means that the principal amount, interest earned, and maturity proceeds are exempted from taxation. Premature withdrawals are allowed at anytime after the expiry of five years from the end of the financial year in which the initial subscription was made, the subscriber can partially withdraw but not more than 50% from the balance that stood to his / her credit at the end of the fourth financial year immediately preceding the year of withdrawal or at the end of the preceding financial year whichever is lower, less the loan amount (if any). Only one withdrawal is allowed per financial year.
For investors looking at a shorter tenure and tax benefits on the principal amount, the NSC is a good alternative. This investment comes with a 5-year term, and it earns interest. While the principal is tax-free, the interest comes under taxable sources of income in India.
Both are comparatively low-risk in comparison to other investment options. As a resident of India, you can invest in either of these easily through a bank or post office. But once your residency changes, it helps to know the amendments to your NSC and PPF holdings.
What Happens When You Become an NRI
In 2018, there were significant changes in PPF and NSC rules for NRIs, here they are:
- Though NRIs cannot open new PPF or NSC accounts, they can continue to hold the ones they opened while they were resident Indians until maturity without making any fresh investments to the PPF account.
- Both PPF and NSC cannot be extended beyond the maturity date.
- Income tax benefits will continue to apply even after you become an NRI.
- The applicable rate of interest for PPF will be reduced to that of a Post Office Savings account (currently 4% per annum*).
PPF Vs NSC
Public Provident Fund
National Savings Certificate
5 years and 10 years
Rate of Interest
7.10% (subject to changes per govt mandate)
6.8% (subject to changes per govt mandate)
Partial Withdrawn permitted after 5 years
Withdrawal not permitted
Tax on maturity
Entirely Tax free
Can be used to obtain a loan
Can be used against a loan and advance
Final Note: PPF and NSC do not become redundant for NRIs. If you are an NRI currently holding a PPF or NSC, it is advisable to continue both until maturity. Once your investment matures, you can then transfer the proceeds in your NRE account.
If you are looking at re-investing the proceeds of your matured PPF and NSC investments, the first step is to open an NRI savings account. With DBS Treasures, you can open NRE and NRO accounts remotely from across the world and start investing in India. Apply Now!
*Please note that the interest rates are applicable as on March 2021 and are subject to change.
Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners. The purpose of the Live eNRIched blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.