Many NRIs question whether they can invest in PPF account in India. The primary reason for this ambiguity of information is that rules relating to PPF for NRI were amended in the year 2018. This article will discuss the rules and conditions relating to PPF for NRI.
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PPF Rules for NRI
The following are the rules and conditions for NRIs who are investing in PPF. The new rules were set in the year 2018 –
- An NRI cannot open a PPF account in India.
- However, a resident Indian can open a PPF account and can become an NRI at a later date. 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, nor can they 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 the maturity period.
- 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.
PPF Deposit Rules for NRI
The government has permitted NRIs to invest in PPF. However, they cannot make a new investment in PPF. Any investment which is already existing in PPF that they opened as Indian Residents. Therefore, NRIs can continue contributing on a non-repatriation basis until maturity in an existing PPF. Furthermore, there is no extension applicable for them.
PPF Extension Rules for NRI
An Indian resident can extend the PPF account for a block of 5 years for an indefinite period. At the same time, an NRI loses this benefit and must close the account after 15 years of maturity. At the same time, if the resident Indian has extended their PPF account and within the extension period, they become an NRI. The current laws allow NRI to continue the account till its new maturity. After the new maturity has reached, the NRI cannot extend the PPF account further.
For instance, an Indian resident investing in PPF extends its account for five years. Let’s assume during the first two years, the residential status remains the same. However, at the end of two years, the person decides to move abroad, and the status changes to NRI. In such a case, the person can continue to hold the PPF for the remaining three years of the five years. This extended period is valid till maturity. The PPF account cannot be extended beyond this period.
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Maturity of PPF Account for NRI
There are two types of withdrawals from the PPF account. One is complete withdrawal on maturity, and the other is partial withdrawal. NRI needs to understand the terms for both these withdrawals:
Special rules apply to non-resident Indians for premature withdrawals. They can withdraw from the seventh year onwards, from the date of opening of the account. However, there are certain conditions relating to it as mentioned below –
- Life-threatening ailment of the account holder
- A serious disease of the account holder
- Higher education of the children
In case of premature withdrawal, a penalty is levied on the interest from the period in which the account has been held. The penalty is in the form of a 1% reduction from the interest rate applicable for that period. Moreover, NRIs can also avail of loans against PPF from the third year onwards.
A complete withdrawal is available on maturity. On maturity, the amount cannot be left in the account as it will not earn interest. It is mandatory for NRIs to completely withdraw the PPF amount on maturity.
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.
Explore PPF Withdrawal Rules
PPF Account Taxation for NRI
PPF is a tax-free investment in India, where there is no tax on returns. However, once the PPF account reaches its maturity, NRI does not have any option rather than to close the account and completely 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.