Public Provident Fund (PPF)
The PPF is a Small Savings account that can be opened at a Post Office or at some scheduled banks.
In my opinion, this is one of the best ways to invest for the ‘debt’ portion of your investment portfolio. There are several advantages for this account.
- When you invest, the invested amount gets a tax break..
- Interest is tax free.
- Withdrawals are tax free.
- No govt. body can attach this money. This is very important. Say you start a business and it has borrowed money and has gone bankrupt. Normally, banks take personal guarantees from the directors of the company to disburse loans. This means that in case of a bankruptcy, they can go after all your personal assets. But they cannot touch the money in the PPF. The government, in one case, went after a person’s PPF account to recover Taxes owed to the government. However, the courts struck it down and even the IT department could not touch the money in the PPF account!
NRIs were allowed to deposit money in the PPF account, provided it was opened when they were Resident Indians. That was a big plus for the NRIs.
A couple of weeks back, the government modified this rule to say that as soon as one becomes an NRI, the PPF and the NSC accounts are deemed closed.
This means that if you are an NRI and have a PPF (or an NSC) account, not only will you be able to put in any additional deposits, but the account is deemed closed on that day. Say, you do not actually close the account and come for the money after a few years. The interest from the time when you became an NRI to the actual closing date of the account will drop down to that of a Post Office Savings account – this is currently 4%.
As usual, when I was explaining this to someone, he came up with the question – What if I just ‘forget’ to inform the Post Office that I am an NRI? Nobody can answer that question, but with everything being linked to Aadhar, I feel in the future, it will be rather easy for the govt. to figure out that you are an NRI. The chance one is taking is the loss of interest for that period.
Suggest you close down the account and divert it to Mutual funds.
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