An can be nominated for a Public Provident Fund (PPF), National Savings Certificate (NSC) or Senior Citizen Savings Scheme (SCSS) account held by a resident Indian. However, an NRI nominee receiving the money does not automatically get the right to repatriate the proceeds outside India.
Under Rule 14(9) of the Government Savings Promotion General Rules, 2018, introduced through the 2023 amendment, an NRI can be appointed as a nominee for eligible government small-savings schemes, subject to the condition that payment to the NRI nominee is made on a non-repatriation basis, Anshuman Jagtap, Partner at Economic Laws Practice, explained.
The rules cover schemes including PPF, NSC and SCSS.
Nomination does not mean investment eligibility
There is an important distinction between being a nominee and being eligible to hold or operate a small-savings account.
“Nomination is not investment eligibility,” Jagtap clarified. Being named as a nominee does not give an NRI the right to open, subscribe to or continue a PPF, NSC or SCSS account if the rules of the respective scheme do not permit it.
A change in the nominee’s residential status also does not, by itself, appear to invalidate a valid nomination. However, if a becomes an NRI, any payment would be subject to the rules applicable to an NRI nominee, including the non-repatriation condition, Jagtap noted.
The nomination should also be formally registered with the post office or authorised bank. Merely naming someone in a will, application letter or family document does not amount to registering a nomination with the institution holding the investment.
What happens when the account holder dies
After the account holder’s death, an NRI nominee would need to notify the post office or authorised bank and submit the prescribed death claim.
The exact documentation can vary by scheme and institution. It may ordinarily include the death-claim form, death certificate, identity and address proof, proof of NRI status and overseas address, the relevant passbook or certificates and bank-account details. The institution may also seek tax or FEMA declarations and additional documents where the nomination is disputed or is not properly reflected in its records, Jagtap explained.
An NRI nominee also cannot continue an SCSS account merely because they have been named as the nominee. Eligibility to continue the account has to be separately satisfied under the applicable rules.
Can an NRI nominee take the money abroad?
This is where the non-repatriation condition becomes important.
Where the nominee is an NRI, Rule 14(9) provides that payment to the nominee is to be made on a non-repatriation basis. This means receiving the proceeds as an NRI nominee does not itself authorise direct remittance of the money outside India.
“Any subsequent remittance would be governed separately by the applicable FEMA/RBI rules and the nominee’s banking arrangements,” Jagtap added.
Therefore, two separate questions need to be considered. The first is whether the NRI is entitled to receive the proceeds as nominee. The second is whether those proceeds can subsequently be remitted overseas.
Does the nominee automatically become the owner?
Not necessarily.
A validly registered nominee is generally entitled to make the claim and receive the money from the post office or authorised bank. However, nomination does not by itself conclusively determine the ultimate beneficial ownership of the amount.
Under the Government Savings Promotion Act, 1873 and the Government Savings Promotion General Rules, 2018, a nominee may be designated as an 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 pointed out that it would therefore be incorrect to assume that an NRI nominee is always merely a trustee for the legal heirs or, conversely, always the ultimate beneficial owner.
Where the nominee has been validly designated as the owner, the nominee may be entitled to the amount in their own right, subject to competing rights that may arise under applicable law. Where the nominee is designated as a trustee, the money is held for the benefit of those legally entitled to the deceased’s estate.
The nominee’s NRI status, therefore, does not determine beneficial ownership. The nomination, applicable scheme rules and succession law need to be examined to establish the ultimate entitlement.
Can legal heirs challenge the nominee?
Yes, depending on the circumstances.
Legal heirs may be able to challenge the nominee’s entitlement, particularly where the nominee is designated as a trustee or where there are questions about the validity of the nomination or competing succession claims, Jagtap said.
A dispute can arise before or after the institution makes the payment. Before payment, heirs can notify the institution of the dispute and, where appropriate, seek an injunction or court order. The 2023 amendment to Rule 15 also addresses disputes raised before the Accounts Office and requires a succession certificate in specified circumstances.
After payment, depending on the nature of the nomination and applicable law, heirs or other persons claiming an interest may pursue appropriate proceedings against the nominee. Where the nominee is a trustee, this could include seeking an account of the proceeds and their distribution to the persons legally entitled to them.
The outcome can depend on several factors, including whether the deceased left a valid will, the applicable personal law, whether the asset was self-acquired or subject to competing proprietary claims, whether the nominee is also an heir and whether probate, letters of administration or a succession certificate are involved.
Does an NRI have to travel to India to claim the money?
Not necessarily.
There is no general requirement for an NRI nominee to personally travel to India in every case. Depending on the procedures of the particular post office or authorised bank, the claim may be processed through an authorised representative or power of attorney, Jagtap explained.
The process may involve documents executed overseas and notarised or apostilled, attestation by an Indian Embassy or Consulate, submission by post or courier, identity verification and an eligible Indian bank account for receiving the proceeds.
A properly authenticated special power of attorney identifying the relevant investment and the specific acts required for the death claim may also be used where permitted. A general power of attorney should not automatically be assumed to be sufficient, Jagtap cautioned.
However, procedures can differ between institutions. The nominee should therefore confirm the overseas-claim, authentication and payment requirements with the particular post office or authorised bank before executing a power of attorney.
What should investors keep in mind?
For resident Indians whose family members live overseas, naming an NRI as nominee is permitted for these but the nomination should be formally registered and the implications of NRI status should be understood.
Most importantly, nomination, beneficial ownership and repatriation are three separate issues. An NRI can be eligible to receive the proceeds as a nominee, but the payment is subject to the non-repatriation condition. Whether the nominee ultimately owns the money or holds it for legal heirs depends on the nature of the nomination and applicable succession law. Any subsequent transfer outside India must separately comply with applicable FEMA and RBI rules.