PPF for NRI: All You Need To Know
A Public Provident Fund (PPF) is a fixed-income, long-term savings account for Indians. It helps you save regularly to create a corpus for your long-term financial goals. The account is affordable and requires a minimum deposit starting at ₹500, and the maximum amount you can invest is capped at ₹1.5 lakh per financial year. PPF accounts have a tenure of 15 years, during which you have to invest every year.
The interest rate on the PPF account is determined by the government and is reviewed every quarter with a guarantee. Thus, you can create a predictable corpus with PPF investments without fearing market volatility.
The PPF scheme also offers tax benefits on your investments, the returns earned and the amount that you get on maturity. Many individuals open a PPF account owing to these tax benefits. Even NRIs want to open a PPF account in their names. But can they do so? Let’s find out the aspects of PPF for Non-Residential Indians (NRIs).
PPF Rules for NRI
According to the latest PPF rules for NRIs that were introduced in 2018, NRIs are barred from opening an account in India. So, technically, NRIs cannot open a PPF account in their names at an Indian bank or post office.
That being said, there is one exception to the rule for PPF for NRIs: If an NRI opened a PPF account when they were a resident Indian (but later became an NRI), the person can continue with the account even after their residential status/nationality changed.
Thus, PPF for NRIs work only if they had previously opened a PPF account when they were resident Indians but later became NRIs. However, for an existing NRI without any PPF account opened previously as an Indian citizen, unfortunately, a new PPF account for an NRI is not allowed.
What are the PPF deposit rules for NRI?
As mentioned before, if an NRI opened the PPF account before their residential status changed, they could continue investing in the PPF account every year even as a Non-resident Indian.
This contribution, however, would be on a non-repatriation basis until maturity. It means that any transfer of the PPF funds—principal or interest, whatsoever—to the resident country is not permissible. Moreover, contributions would be allowed only up to the maturity date. Once the funds reach the predetermined maturity, the NRI can repatriate the amount.
Also Read: NSC vs PPF: Which One is Better for You
What are the PPF extension rules for NRIs?
In the case of resident Indians, there is an extended period of five years for PPF deposit extension, post maturity. This means that after the account matures after the standard 15 years, as an Indian you can extend the term in blocks of five years each. However, NRIs do not enjoy this facility. Once the PPF account matures after 15 years, it should be compulsorily closed and dissolved. It cannot be extended by any tenure.
Maturity of the PPF Account for NRI
An investment made into the PPF account stays invested for the specified tenure. The balance in the account is accessible in two cases: either when the account matures or during the tenure through partial withdrawals. But how do these rules apply to NRIs?
Let’s understand the withdrawal rules from the PPF account of NRIs:
The standard PPF account matures after 15 years. This period is the same for NRIs and resident Indians. When the account matures, the full balance available in the account can be withdrawn. NRIs can withdraw and repatriate this money and use it for their financial needs.
However, unlike resident Indians, NRIs have to compulsorily withdraw the full PPF balance when the account matures. Should they choose to leave their investment in the account, it will not attract any additional interest rate whatsoever. That is why NRIs are advised to withdraw the PPF balance when the account matures.
Upon maturity, the PPF amount would be credited to the NRO (Non-Resident Ordinary) account. NRIs can repatriate this amount to their resident country. Repatriating means withdrawing the funds from the country where they live. The maturity amount is freely repatriable, allowing NRIs to use the funds in any country.
If an NRI needs funds during the tenure of the PPF account, the facility of partial withdrawal is available. However, this facility is available from the seventh year of opening the account. However,
For example, if an NRI opens a PPF account in January 2015, they will be allowed to make partial withdrawals from January 2021 onwards. For the first six years, they will not be allowed to withdraw any amount from the PPF account.
Moreover, NRIs can withdraw only in the following instances*:
- If they suffer a life-threatening ailment
- If they need funds for your children’s higher education
- If they suffer from a serious disease and need funds for treatments
*the bank or post office, upon their sole discretion may accept or reject premature withdrawal of NRI PPF funds, based on their document verification.
In the case of partial withdrawals, the interest on their PPF account would be reduced by 1% for the quarter in which they withdraw. For example, if the interest for the January-February-March quarter is 7.6% and an NRI makes a partial withdrawal in February, the interest for the whole quarter would be calculated at 6.6%.
This reduction is a penalty to deter NRIs from partially withdrawing from their PPF accounts after the seven-year window. If they want to avoid this penalty, they can choose to borrow a loan against their PPF account balance.
The loan facility is available from the third year of opening the PPF account. For example, if they opened the PPF account in January 2015, they can avail of a loan in January 2017 against their PPF.
Please note that the amount of their premature withdrawal would be credited to their NRO Account as well. However, it would not be repatriable. This means that NRIs would not be allowed to remit the amount to a foreign bank account or withdraw it in an international country.
The PPF Account for NRI and its Extension
There is no provision for a PPF account for NRIs in India. NRIs cannot open a PPF in their names if they are already NRIs. However, if their residential status changes after opening the PPF account, the account continues till maturity. In such cases, NRIs can invest in the existing PPF account and get guaranteed returns on their investments.
However, NRI deposits into the PPF account would be allowed only till maturity. They would not be allowed to enjoy the extension of the maturity tenure by another five years or more, as is applicable in the case of resident Indians. Once the PPF account matures, NRIs will have to withdraw their investment, and they can repatriate it to their resident country.
That being said, if you have chosen to extend the PPF maturity while still a resident Indian, you can enjoy the extension even after becoming an NRI. In such a case, the extension would be allowed. However, you will not be allowed to exercise the extension option after you become an NRI.
A PPF account is a tax-saving investment avenue that helps you earn guaranteed returns on investments. Moreover, their long-term horizon allows you to create a suitable corpus for your financial goals. The partial withdrawal and loan facility also offers liquidity so that you can take care of your financial needs. However, existing NRIs cannot open a PPF account in India. If they have an account opened while they were still residents, they can contribute to the account even after becoming an NRI.
So, know the rules of PPF for NRIs so that you know whether you are eligible or not.
What is the taxation rule on the PPF account for NRIs in India?
The investment that NRIs make would be allowed as a deduction from their taxable income earned in India. This deduction is allowed under Section 80C up to a maximum limit of Rs 1.5 lakhs. The interest earned would also be tax-free.
However, the maturity amount that is credited to the NRO account would attract tax. The tax would be levied as per the rules of the NRO account applicable in the year of maturity.
What is the maximum investment amount for PPF?
NRIs can invest a maximum of ₹1.5 lakhs in a year in the PPF account.
I opened a PPF account in April 2015 when I was a resident Indian. After six years, in April 2021, I chose to extend the maturity by five years. In April 2022, I became an NRI. Would the extension apply?
Yes, the extension would apply because you chose the extension while you were still a resident Indian. So, your PPF account would mature 20 years after opening, i.e., in April 2035.
Can NRIs invest in any other scheme in India?
Yes, besides a PPF account, there are various investment avenues for NRIs in India. These include the following:
Fixed deposit schemes
Government securities and deposits
National Pension System
Moreover, NRIs can invest in tax-saving avenues to save on the tax liability payable on the income they earn in India.
How is the interest calculated on the PPF account?
The interest is calculated and compounded quarterly. It is calculated at the quarterly interest rates specified by the government for each quarter.