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Key Takeaways: For years, National Savings Certificate (NSC) and Public Provident Fund (PPF) have been popular investments in India. The question here is, can NRIs invest across both options? Read on to find out.
NSC and PPF are fixed-income government schemes that provide stable returns at minimal risk. Both have their own benefits and drawbacks. The choice between the two should be based on your financial objectives.
National Savings Certificate (NSC)
NSC is a postal savings scheme offered by the Indian government wherein you can invest any amount. One of the reasons to choose this scheme is to opt for tax savings where an investment up to INR 1.5 lakh (in a financial year) qualifies for a tax deduction under section 80C.
Rate of Interest and tenure: The current rate of interest is 6.8%* p.a. (compounded annually) and the interest income is taxable. The tenure for the NSC VIII issue is five years, while NSC IX is ten years. While the government decided to discontinue series IX in 2015, series VIII is still available for subscription for resident Indians. Once the certificate matures, it will continue to accumulate simple interest at the rate of savings accounts and the same will be paid lump sum at the time of repayment.
Withdrawal or encashment: You can partially withdraw from your NSC only under certain circumstances like the death of a joint holder or a court order. On maturity, the primary holder will have to visit the post office where they had opened the certificate to withdraw.
Rules for NRIs: As an NRI, you will not be permitted to open a new NSC, but you can continue to hold your existing one until maturity. If you are looking to withdraw or encash it, you will have to authorise your relative in India to do it for you. Else, you can do it yourself on your next visit to India.
A PPF is a long-term savings scheme which is useful to create wealth for life after retirement. It is also considered safe because it comes with government backing for returns on investment. Read more on the new PPF rules for NRIs here.
As an NRI, you cannot open a new PPF account. If you already have an existing account, you can stay invested in it, however please note that you will not be able to add any fresh investments. Your PPF balance will continue to receive interest until the maturity period of 15 years. That said, unlike resident Indians, you are not permitted to use the 5-year extension facility on PPF accounts. Furthermore, the sums deposited in the PPF account and the interest earned on it may only be retained in India.
Differences Between NSC and PPF:
As an NRI, you are not eligible to open new PPF or NSC accounts. You can, however, continue to hold your existing accounts until maturity.
|Tenure||5 years for NSC VIII issue||15 years from the account opening date|
|Rate of interest||6.8%* p.a.||7.1%* p.a.|
|Holding Pattern||Single or joint holders||Only one holder is allowed per PPF account|
|Number of accounts||You can open as many NSCs in your name. The maximum amount per certificate is INR 10,000||You can have only one PPF account in your name. The only exception is when you open an account for your child. In that case, you become a joint holder|
|Contributor||Self, joint holder or guardian in case of a minor||Self or parent in case of a minor|
|Tax benefit||The principal is tax-free up to INR 1.5 lakh in a financial year under Section 80C. The interest is taxable under income from other sources||The contribution is tax-free up to INR 1.5 lakh in a financial year under Section 80C. The interest and maturity amount is also tax-free|
|Point of withdrawal||You can withdraw or encash your NSC only at the post office from where you purchased it. If you are sending a relative to withdraw the NSC on your behalf, you will have to authorise the person with a signed letter||You can get the withdrawal from your bank (if your bank has the facility). You can also visit the NSI India website and download Form C or its equivalent to apply for a withdrawal|
Final Note: If you had an NSC or a PPF account before you became an NRI, you can enjoy the benefits of being invested in both investment options until they mature. While PPF offers better interest rates and tax benefits, NSC comes with shorter tenures and higher deposit amounts.
*As on June 2020. The interest rates are subject to change.
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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.