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NRI Investment in PPF

For a better and simpler understanding, the Public Provident Fund, also known as PPF, is a popular long-term saving scheme provided by the Government of India. Our government promises to provide a safe and guaranteed return. Hence, PPF is recognized as one of the most tax-friendly investments. As an NRI, however, if you are wondering whether or not you can open a new PPF account, the answer is no. However, you are in luck if you had a PPF account opened before you became an NRI; in that case, you can continue holding the account till the scheme’s maturity. We understand how confusing these rules and regulations can be; therefore, we have covered everything you need to know for NRI investment in PPF to make things easier. 

What are the PPF rules for NRIs? 

We have listed the rules and conditions for NRIs investing in PPF to streamline things for you. Set in 2018, the new rules are – 

  • An NRI cannot open a PPF account in India.
  • However, a resident Indian can open a PPF account and become an NRI later. Such a person can continue to hold the PPF account until maturity.
  • Upon maturity, the NRI has to close the PPF account compulsorily. There are no exemptions provided.
  • Therefore, NRIs also cannot extend their PPF account or leave it. The only option is to close the PPF account on maturity, i.e., after completion of 15 years.
  • If the NRI does not comply with the rules and leaves the account open, no interest is payable after maturity.
  • Suppose an NRI keeps contributing to the PPF account without informing the bank about the change in residential status after maturity. In that case, no interest will be payable on the contributions post-maturity. Moreover, banks monitor the customer’s KYC status regularly.

What are the PPF extension rules for NRIs?

Do you know an Indian resident can indefinitely extend their PPF account for a block of 5 years? However, an NRI loses this benefit and must close the account after 15 years of maturity. Additionally, if the Indian resident extends their PPF account within the extension period, they become an NRI. The account may be kept open until its new maturity under current laws. The NRI cannot extend the PPF account after the new maturity. For example, Aditya, an Indian resident who has been investing in PPF, and now decided to extend his account for five years. Let’s assume for the first two years, his residential status remains the same. However, at the end of two years, he decided to move abroad, and his status changed to that of an NRI. In that case, he can continue to hold the PPF for the remaining three years of the five years. This extended period is valid till maturity, and the PPF account cannot be extended beyond this period. 

What is the maturity of the PPF account for an NRI? 

Remember that there are two types of withdrawals from the PPF account. One is complete withdrawal on maturity, and the other is partial withdrawal. NRIs need to understand the terms for both of these withdrawals:

  • Premature Withdrawal

Special rules apply to non-resident Indians for premature withdrawals. They can withdraw from the seventh year onwards, from the account’s opening date. However, there are some conditions regarding it, as mentioned below – 

  1. Life-threatening ailment of the account holder
  2. A severe disease of the account holder
  3. Higher education for children

NRIs can also avail of loans against PPF from the third year onwards.

  • On Maturity

 A complete withdrawal is available on maturity. The amount cannot be left in the account on maturity as it will not earn interest. It is mandatory for NRIs to withdraw the PPF amount on maturity completely. Both partial withdrawal and complete withdrawal are credited to the NRO account. Also, partial withdrawals cannot be repatriated, but the maturity amount can be repatriated abroad.

What is the PPF account taxation for an NRI? 

PPF is a tax-free investment in India, with no tax on returns. However, once the PPF account reaches its maturity, NRI only has the option to close the account and ultimately withdraw the maturity proceeds. Thus, the maturity amount is credited to the NRO account and will be taxable as per the NRO account tax rules.

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