PPF or Public Provident Fund is a very popular long-term investment option preferred by most Indians since it comes with risk-free returns due to government backing. Apart from being tax-friendly, this investment avenue offers guaranteed returns. While resident Indians may find it easy to invest in PPF, an NRI may have several questions on how to go about this investment.
Here is everything that an NRI or Non-resident Indian needs to know about PPF.
Can a non-resident Indian open a PPF account?
No, an NRI cannot open a new PPF account in India. If, however, a resident Indian has opened a PPF account and becomes an NRI later then he/she can retain the ownership of the PPF account till it matures.
Once the PPF account matures after 15 years, the NRI individual must mandatorily close his/her PPF account. In case an NRI individual leaves the PPF account open after maturity, no interest will be payable post maturity period.
Since banks constantly monitor every customer’s KYC status, it is important for NRIs to inform the bank or post office about their current residential status before contributing to the PPF account. Failure to do so will result in no interest being paid on the contributions after maturity.
Did you know
NRIs who wish to avail a loan against their PPF corpus can request for it from the 3rd year onwards.
Read more: Can NRIs invest or trade in the Indian Stock market?
PPF extension for NRIs
If an Indian resident has invested in PPF, he/she can extend the maturity of the PPF account indefinitely in phases of 5 years. In contrast, an NRI does not enjoy this benefit of renewal and has to close the PPF account once it reaches a maturity period of 15 years.
Change in residential status during extension
In case a resident Indian extends his/her PPF account and during the extension, he/she gets an NRI status, they can continue the account till it reaches fresh maturity. At the end of the new maturity period, the NRI will not be able to extend the PPF account and must close it.
Let’s understand this with the help of an example:
Suppose a PPF investor, Ms. Nisha, who is an Indian resident, invests in a PPF account. Her PPF account matured in 2020 and she decided to extend her account for another five years. This means she can remain invested in PPF until 2025.
However, in 2022, she decides to move abroad and her residential status changes to NRI. She can continue to own the PPF account until 2025 since she has already extended the maturity in 2020. However, her PPF account will not be extended beyond 2025.
PPF withdrawals for NRI
In PPF accounts, there are two types of withdrawals, complete withdrawal at maturity and premature withdrawal. A PPF investor, whether NRI or resident Indian, must understand both these categories before making a withdrawal:
Withdrawal at maturity
At maturity, which is 15 years, an NRI account holder can make a complete withdrawal from the PPF account. Since an NRI cannot extend the maturity, no amount must be left in the account and it must be fully withdrawn. It is important to note that even if one leaves any amount in the PPF account or makes additional deposits, the amount will cease to earn interest post maturity.
There are certain special rules when it comes to premature PPF withdrawals for non-resident Indians. Let’s have a look:
- Premature withdrawals can be made only after completion of 7 years of account opening.
- Withdrawals can be made only if the funds are required to treat any life-threatening ailment of the account holder or serious disease of the account holder or if he/she needs to pay for the higher education of their children.
For any such premature withdrawals, a penalty will be applied on the interest. This is calculated as 1% interest rate reduction from the time that the account was started.
The withdrawals made through partial or complete withdrawal are directly credited to the NRO account. While partial withdrawals are not allowed to be repatriated, the funds at maturity can be repatriated to a foreign country.
Taxation on PPF returns for NRI
PPF returns are tax-free in India. At maturity, once an NRI account holder withdraws the maturity funds from his/her PPF account, the same is credited to his/her NRO account. Therefore, such funds are taxable as per the tax rate applicable on NRO account credits.
NRIs who wish to close their PPF accounts at maturity can do so by furnishing completed PPF withdrawal form and KYC documents. An NRI can give an authorisation letter to an individual who can submit these documents to the bank or post office on his/her behalf.
The PPF interest rate for the quarter of June-August 2022 is 7.31%.
Some of the common alternatives to PPF that NRIs can explore are, NRI FDs, mutual funds, NPS, and ULIPs.
Although returns from PPF come under the ‘Exempt Exempt Exempt’ category of taxation, this does not apply to NRI accounts since NRIs have to mandatorily withdraw PPF corpus at maturity. This gets credited to their NRO accounts, which, in turn, is taxable.
Yes, NRIs can directly transfer funds from their NRE accounts to PPF accounts for yearly PPF contribution.