New PPF rules NRIs should know
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Key Takeaways: Public Provident Fund (PPF) schemes are popular investments in India. As an NRI, you might want to know if you can open a new PPF account or if you can retain your existing PPF account. Here’s all you need to know about PPF for NRIs.
The Public Provident Fund is a popular long-term saving scheme from the Government of India. It provides safe and guaranteed returns and is one of the most tax-friendly investments. As an NRI, however, you cannot open a new PPF account and invest in it. But in case you already had a PPF account before you became an NRI, then you can continue to hold it till the scheme’s maturity.
The 2017 PPF - NRI notification
A government notification released on 3rd October 2017 amended the Public Provident Fund rules and stated that you will need to close the PPF account the day you become an NRI. It also said that if you choose to continue the account, the rate of interest accrued will be reduced to the rate applicable to the Post Office Saving Account (currently 4% per annum*).
Prior to this rule, NRIs (who had a PPF account as a resident Indian) could invest in the fund through an NRO account. They also enjoyed the same rate of interest given to a resident Indian, which was about 7.8% per annum in 2017.
The government made amendments to this rule in 2018 and set out revised guidelines.
Present PPF rules for NRIs
As per the new rules set in 2018, as an NRI, you can continue your PPF account that you had opened while in India, but you cannot open a new account. Some of the other rules are as follow:
- You cannot extend the account beyond maturity which is 15 years
- Interest rates will be reviewed by the Government of India every quarter and can be changed
- Interest earned is exempt from taxes
Procedure for withdrawal
You can close the PPF account prematurely after five years to pay for your higher education or your child’s higher education if your child is the primary account holder. Another instance where premature withdrawal is allowed is to pay for a medical contingency where you or your loved one is diagnosed with a life-threatening illness. Else, you can close your account after maturity and withdraw the funds. However, these funds are non-repatriable which means that you cannot transfer the money abroad.
To close the account, you need to submit the PPF withdrawal form, PPF passbook from your bank, photo identity card and a cancelled cheque from your NRO account to which you want the PPF balance credited. If you are not available to complete all formalities, then you can send a representative with an authorization letter. The documents need to be attested by your bank’s branch manager before they are submitted.
Once the process is completed, the funds will be transferred to your NRO account.
Final Note: PPF combines fixed and safe returns with good tax efficiency. It’s one of the few investments that is classified as Exempt, Exempt, Exempt (EEE) – your investments are tax-deductible; the returns are tax-exempt and so are the maturity proceeds. So, if you are an NRI with an existing PPF account, continue holding it by all means.
*Please note that the interest rates are applicable as on April 2020 and are subject to change.
Disclaimer: This article has been shared purely from an information perspective and we recommend you conduct extensive research before proceeding.