Rules for NRIs Regarding PPF Account

Every person who has investible funds wants to invest them for their future growth. Some individuals want to invest in risky avenue in order to earn higher, while, some wish to park their surplus money in safe alternative. Therefore, various options for investments are available in India and you are free to choose any of them as per your financial goal and risk appetite.

One of such investment options is Public Provident Fund (PPF), which is a long-term savings scheme backed by the Government of India launched in 1968. PPF is a very popular investment option which offers not only attractive interest rates but also tax benefits and high level of security having government backing. PPF accounts benefit from compounded interest which can significantly boost returns over time. Most of the people find PPF very lucrative investment option and hence do not left behind in investing in it in double quick time.

Resident Indian individuals can invest in PPF. This includes adults and minors.

NRIs (Non-Resident Indians) are not eligible to open a new PPF (Public Provident Fund) account in India.

However, if a person opens a PPF account in India as a resident Indian and later became an NRI during the maturity period prescribed under the PPF Scheme, he can continue the account till maturity. For example, Ajay, who opened his PPF account in 2015 and moved to the Spain in 2020, can maintain his PPF account until 2030 but he is not allowed to extend it further. In such cases, contributions are accepted and interest is earned in the existing PPF account until it matures i.e. till the end of the 15-year term. After maturity, the PPF account must be closed as it cannot be extended.

There are some defined rules for NRIs with regard to investment in PPF account. These rules must be known by the NRIs who is willing to invest in India.

Rules for NRIs Regarding PPF Accounts

NRIs must be aware of specific rules which apply to them regarding PPF investment such as restrictions on account openings, contribution limits, extension of account and tax implications. Below, you will fidn the details of such crucial rules for providing NRIs with the necessary information to make informed decisions and maximize the benefits of their PPF investments.

1. Continuation of PPF Account after Change in Residential Status: If a person opens a PPF account as an Indian resident and later became an NRI, he can continue to contribute to the account till maturity.
2. Fresh Contributions: NRIs can make fresh contributions to their existing PPF account.
3. Contribution Limits: NRIs can invest as little as Rs.500 or as much as Rs.1.5 lakh per year.
4. Account Closure: On maturity, NRIs must close their PPF accounts.
5. Rules on Extension of PPF Account: NRIs can not extend their PPF account after its maturity i.e. beyond the initial 15-year period.
6. No Fresh Contributions after Maturity: After the maturity of a PPF account, NRIs are not allowed for making further contributions, irrespective of their residential status.
7. No Interest Income After Maturity: NRIs will not earn any interest on their PPF accounts after maturity, if they don't close their account.
8. Transferring Maturity Proceed: NRIs can transfer the proceeds of their PPF account to their Non-Resident Ordinary (NRO) account on maturity.
9. Residency Status: NRIs should update their residency status with their bank or post office to stay compliant with regulations.
10. Premature Closure: NRIs can prematurely close their PPF account, if they have held it for 5 years or more.
11. Repatriation Rules: While NRIs can maintain their PPF accounts till maturity, they must do so under non-repatriation terms which means that the funds cannot be transferred abroad or converted to foreign currency.

Key Benefits of PPF for NRIs

Benefits of PPF are the same for resident Indian as well as NRI investors. Given below are the major benefits of PPF for the PPF account holders.

PPF Account Taxation for NRI

There are specific rules regarding taxation under PPF account for NRIs. The details are as follows,

• Taxation on Interest: Interest earned on PPF accounts is fully exempt from tax under Section 10(15)(i) of the Income Tax Act, 1961.
• Taxation on Maturity Amount: Maturity amount (both principal and interest) is also totally exempt from tax.
• Taxation on Contributions: Contributions made to the PPF account by NRIs are not eligible for tax benefits under Section 80C of the Income Tax Act.

What Strategies can NRIs Use to Maximize PPF Benefits?

As an NRI, you can adopt several strategies to maximize the benefits of your PPF account as mentioned below.

Contribute Regularly

You should make regular contributions and try to maximize your contribution upto the annual limit of Rs.1.5 lakh.

Invest before the 5th of Every Month

Always invest before the 5th of every month because PPF interest is calculated on the lowest balance between the 5th and last day of every month.

Monitor Interest Rates

You need to keep an eye on the interest rates offered by PPF and compare them with other investment options.

Maintain the Account

Always check that the PPF account is active and PPF contributions are being made regularly to avoid account dormancy and loss of interest on lost contributions.