PPF Rules for NRIs in 2022: Busting the Common Myths

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Key Takeaways

NRIs are not allowed to open PPF accounts. However, those ROs, who have assumed NRI status, can continue to keep the account operational until maturity. Once it matures, they have to close their accounts and cannot extend them.

Introduction

When she first got a job, Rhea Fernandez opened a Public Provident Fund (PPF) account to put away savings and get tax benefits of INR 150,000 each year. Over the past eleven years, Rhea has continued investing in her PPF account. Now, she an opportunity to work in the UK, which means she will have to assume NRI status. Naturally, she cannot help but wonder about her PPF account, in which she has diligently put away INR 150,000 each year and created lump sum savings. Will Rhea have to adhere to different rules as an NRI on her PPF account? Let us find out more about PPF rules for NRIs in this article.

PPF Accounts for NRIS – Can NRIs Invest in PPF?

NRIs are not permitted to open PPF accounts. This tax-saving facility is exclusively reserved for Resident Indians. However, Rhea opened her PPF account in her capacity as a Resident Indian. So, what happens when her residency status changes?

RBI norms dictate that Resident Indians who open a Public Provident Fund account and later become NRIs can continue to subscribe to the scheme until their account matures, i.e. for a period of 15 years. Since Rhea has invested in her PPF account for 11 years, she can keep the account operative until it matures. She may continue earning interest on her existing deposits, but she is not permitted to make fresh contributions for the remaining duration, i.e., the next four years.

PPF for NRI – How Rules Differ

Informing the Bank or Post Office

Let us say Rhea opened her PPF account with her bank. As soon as Rhea assumes NRI status, she should inform her bank. If she intends to keep earning interest in the PPF account, she must inform her bank about her changed residential status. If she fails to notify the bank of the same, she will not receive any interest once her account matures. The bank can track her status using basic KYC.
Account Extension

As a Resident Indian, Rhea could extend her PPF account in blocks of 5 years after completing the 15-years maturity period. However, as per PPF rules for NRIs, she may no longer extend her account upon maturity. She has to withdraw her investment upon maturity and cannot use the extension benefit to her advantage.

Now, if Rhea had already completed her 15-years investment and extended her PPF account for another 5 years (as permitted), she could continue to deposit money only until the end of the first block of 5 years. So, if she became an NRI after 2 years of extending her account, she could not extend her account after 3 years in the five-year block. The bottom line is that she cannot extend her investment after assuming NRI status. Once her account matures, Rhea is obligated to close it.

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Repatriation and Withdrawal

Upon becoming an NRI, Rhea may need some money in her UK bank account to live a comfortable life there. PPF accounts permit partial withdrawals of up to 50% of the sums deposits in the account after 7 years of investment from the account opening date. If she opts for partial withdrawal, the sums will be credited into her Non-Resident Ordinary (NRO) Rupee Account. The same rules apply for complete withdrawal on maturity as well. However, she may not repatriate partial withdrawals into her UK bank account. She may only repatriate the money abroad after her account matures at 15 years. If she wishes, she can make the partial withdrawal before moving to the UK. This will allow her to have some funds to manage her expenses in the UK.
Tax Rules

PPF is typically an EEE (Exempt, Exempt, Exempt) investment vehicle. Essentially, a resident Indian investor does not have to pay any taxes on the investment amount, interest earned, and final maturity amount. But when it comes to PPF for NRIs, the tax rules differ slightly. As an NRI, Rhea has only one option; she has to withdraw the sums deposited in the account entirely and close the account. The maturity proceeds are then transferred into her NRO Account, and she will be liable to pay taxes in accordance with the NRO Account taxation rules.

NRI PPF Account Closing Procedure

NRIs must follow the same account closing procedure as Resident Indians. When she visits India, Rhea needs to visit her bank or post office, submit her PPF withdrawal form along with a copy of her ID proof, PPF passbook and a cancelled cheque. The money will be deposited into her NRO Account. If she is unable to visit India, she can have a family member or friend withdraw the sums on her behalf by giving them an authorisation letter. She can fill the PPF withdrawal form online, attach copies of her ID proof and cancelled cheque and send these to her representative in India along with the authorisation letter. Her representative must visit the bank and ask the bank manager to attest her documents and then withdraw the PPF account. Even if she chooses this option, the funds will be credited into her NRO account.

Final Note

For NRI PPF accounts, the rules are considerably different than those applicable for Resident Indian PPF account holders. As a new NRI, Rhea must follow the rules mentioned above and is obligated to close the account on maturity.

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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.

The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.