Such investors to earn interest at post office savings account rate of 4% instead of 7.8%

Indian residents having investments in public provident fund or national savings certificates will not enjoy high returns under these schemes should they become non-residents.

Under the new rules issued by the government, these investments will deemed to be closed on the day the investor becomes a non-resident. Subsequently , the investor will be paid interest at the much lower post office savings account rate, the government said in a notification.

Both PPF and five-year National Savings Certificate (NSC) earn 7.8% annual return, higher than what banks offer. "Provided that if a resident who opened an account under this scheme, subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes a non-resident," the notification said. It goes on to say that the "interest with effect from that date shall be paid at the rate applicable to the Post Office Saving Account up to the last day of the month preceding the month in which the account is actually closed".

The post office savings account now pays 4% per annum return.

A person is considered resident in India if he is in the country for 182 days or more in a year or 60 da ys in a year and 365 days in each of the preceding four years as per the Income Tax Act. Howe ver, the residency definition dif fers under the Foreign Exchange Management Act.

There is no clarity on which de finition would be applicable in this case. Under FEMA, "person resident in India" means a per son residing in India for more than 182 days during the course of the preceding financial year.

But it does not include a person who has gone out of India or who stays outside India, in either case, for or on taking up employment outside India, or for carrying on outside India a business or vocation, or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period."They need to clarify whether residency to be determined under tax laws or FEMA? The objective behind this move seems to be that they want to reduce their interest burden and non-residents get other avenues such as having NRE account etc. to make investments