An An NRI can be nominated for a Public Provident Fund (PPF), National Savings Certificate (NSC) or Senior Citizen Savings Scheme (SCSS) account owned by a resident of India. However, the NRI nominee who receives the money does not automatically have the right to repatriate the proceeds outside India.
As per Rule 14(9) of the General Government Savings Promotion Rules, 2018, introduced by the 2023 amendment, an NRI can be nominated as a candidate for eligible government small savings schemes, provided that payment to the NRI candidate is made on a non-repatriation basis, explained Anshuman Jagtap, Partner, Economic Law Practice.
The rules cover schemes including PPF, NSC and SCSS.
Nomination does not mean the right to investment
There is an important difference between a nominee and the right to own or operate a small savings account.
“Nomination is not an investment right,” Jagtap clarified. Appointment as a nominee does not entitle an NRI to open, subscribe or continue a PPF, NSC or SCSS account unless the rules of the relevant scheme permit it.
A change in a candidate’s residence status also does not in itself invalidate a valid nomination. However, if The candidate becomes an NRI, any payment will be subject to the rules applicable to the NRI candidate, including the non-repatriation clause, Jagtap noted.
The nomination must also be officially registered with the post office or authorized bank. Merely naming someone in a will, letter of application or family document does not constitute registration of a nomination with the institution holding the investment.
What happens when the account holder dies
Upon death of the account holder, the NRI nominee will have to notify the post office or authorized bank and file the prescribed death declaration.
The exact documentation may vary by scheme and institution. Typically, it may include a death declaration form, death certificate, proof of identity and address, proof of NRI status and foreign address, relevant passbook or certificates, and bank account details. The agency may also request tax or FEMA returns and additional documents if the nomination is disputed or not properly reflected in its records, Jagtap explained.
An NRI candidate also cannot continue the SCSS account just because he has been listed as a nominee. Eligibility for account continuation must be separately verified in accordance with applicable rules.
Can an NRI nominee take money abroad?
This is where the condition of non-repatriation becomes important.
If the candidate is an NRI, Rule 14(9) provides that payment to the candidate shall be made on a non-repatriation basis. This means income generation as the NRI nominee itself does not allow direct transfer of money outside India.
“Any subsequent remittances will be subject to separately applicable FEMA/RBI regulations and nominee banking agreements,” Jagtap added.
Therefore, two separate issues need to be considered. Firstly, whether the NRI is entitled to receive income as a nominee. Secondly, whether these incomes can subsequently be transferred abroad.
Does a nominee automatically become an owner?
Not necessarily.
A valid registered nominee will usually have the right to file a claim and receive the money from a post office or authorized bank. However, nomination alone does not determine the ultimate beneficial owner of the amount.
Under the Promotion of Public Savings Act, 1873 and the General Rules for the Promotion of Public Savings, 2018, a nominee can be appointed as the owner of the amount or as a trustee for the benefit of the legal heirs, subject to the rules governing the particular savings instrument.
Jagtap noted that it would be incorrect to assume that the nominee owner of an NRI is always merely a trustee of the legal heirs or, conversely, is always the ultimate beneficial owner.
If the nominee has been validly appointed by the owner, he may be entitled to receive the amount himself, subject to competing rights that may arise under applicable law. If a nominee is appointed as a trustee, the money is held for the benefit of those who have a legal right to the deceased’s property.
Thus, the nominee status of an NRI does not determine beneficial ownership. The nomination, the applicable rules of the scheme and the law of succession must be examined to determine the final title.
Can heirs legally challenge a candidate?
Yes, depending on the circumstances.
Legal heirs may be able to challenge a nominee’s rights, especially if the nominee is appointed as a trustee or when there are questions about the validity of the nomination or competing claims to succession, Jagtap said.
The dispute may arise before or after the institution makes the payment. Before payment, the heirs may notify the dispute institution and, if necessary, seek an injunction or court order. The 2023 amendment to Rule 15 also addresses disputes arising in the Court of Accounts and requires a certificate of succession in certain circumstances.
After payment, depending on the nature of the nomination and applicable law, the heirs or other persons claiming interest may initiate appropriate proceedings against the nominee. If the nominee is a trustee, this may include requiring an accounting of the proceeds and distributing them to those legally entitled to them.
The outcome may depend on several factors, including whether the deceased left a valid will, applicable personal law, whether the asset was self-acquired or is subject to competing estate claims, whether the nominee is also an heir, and whether a will, letters of administration or certificate of succession are involved.
Should an NRI go to India to get money?
Not necessarily.
There is no general requirement for an NRI candidate to travel to India personally in every case. Depending on the procedures of the particular post office or authorized bank, the claim may be processed through an authorized representative or power of attorney, Jagtap explained.
The process may include documents executed abroad and notarized or apostilled, attestation by an Indian embassy or consulate, submission by mail or courier, identity verification and availability of a suitable Indian bank account to receive the proceeds.
Where permitted, a duly certified special power of attorney may also be used specifying the appropriate investments and specific actions required to file a death claim. A general power of attorney should not automatically be considered sufficient, Jagtap cautioned.
However, procedures may vary between institutions. Therefore, the candidate should confirm the claims, authentication and overseas payment requirements with the specific post office or authorized bank before executing the power of attorney.
What should investors remember?
Residents of India who have family members living abroad are allowed to appoint an NRI as a nominee. small savings schemes, but the nomination must be officially registered and the implications of NRI status must be understood.
Most importantly: nomination, beneficial ownership and repatriation are three separate issues. An NRI may be entitled to receive income as a nominee, but the payment is subject to non-repatriation. Whether the nominee will ultimately own the money or hold it for the legal heirs depends on the nature of the nomination and the applicable inheritance law. Any subsequent transfer outside India must separately comply with applicable FEMA and RBI regulations.