PPF is a hugely popular investment scheme in India that has helped lakhs of resident Indians create tax-free wealth over decades. But this changes once an Indian resident becomes an NRI.
NRIs are allowed to invest in Indian markets across most investment products. However, when it comes to PPF, the rules do not allow NRIs to hold a Public Provident Fund (PPF) account. NRIs are allowed to open an NPS account, another retirement-focussed scheme, but are not allowed to hold a PPF account after becoming an NRI.
If you are an NRI, Person of Indian Origin (PIO), or Overseas Citizen of India (OCI), you cannot register a new PPF account. But if you had opened a PPF as a resident Indian and later changed your status to non-resident, there’s hope.
PPF Rules for NRIs
For an NRI, the PPF account will not close from the day the status changes. You may keep making new contributions to your existing PPF account until it matures or your nationality remains Indian, whichever comes first.
The PPF account has a maturity of 15 years and can be extended in blocks of 5 years indefinitely for resident Indians. However, the account is automatically closed upon maturity for NRIs, and NRIs are not permitted to extend it. On maturity, the PPF funds must be transferred to a Non-Resident Ordinary (NRO) account.
In short, only resident Indians are allowed to open a PPF account, while NRIs are not. A resident who becomes a Non-Resident Indian during the 15-year maturity period of the Public Provident Fund Scheme may continue to contribute to the PPF scheme until its maturity, on a Non-Repatriation Basis.
That said, a PPF account in the name of resident Indians can nominate non-resident Indians as a nominee, on a non-repatriation basis.
PPF is a debt investment, with money not exposed to equities, and hence returns are not linked to the stock market’s performance. The interest rate on PPF returns is set by the government every quarter based on the yield (return) of government securities.
Watchouts
To keep a PPF account active and avoid discrepancies, NRIs should notify the bank or post office of any change in residency status and ensure a minimum annual deposit of Rs 500 and up to a maximum of Rs 1.5 lakh.
Any contribution by the NRI depositor made without informing the bank is irregular and not eligible for interest. Amounts deposited after maturity will be refunded to the account holder without interest.
However, if you have informed the bank about your NRI status, the PPF account will continue to earn the standard interest rate till maturity, on both the fresh contributions and the accumulated corpus. The tax benefit under section 80C under the old tax regime will also be available to them.
In 1968-69, PPF offered a 4 per cent per annum interest, while from 1986-2000 it offered 12 per cent. From 2000 to 2011, rates decreased steadily to 8%. Between 2011 and 2016, they fluctuated between 8.6% and 8.8%. From 2016 to 2020, the government implemented quarterly revisions, leading to a decrease from 8.1% to 7.9% by early 2020. Since April 2020 to date, the rate has remained unchanged at 7.10%.
NRIs are not eligible for the extension feature in the PPF scheme and must make informed decisions to optimally deploy their tax-free corpus on maturity of the account after 15 years.
Disclaimer: This article is for informational purposes only and does not constitute investment, tax, or legal advice. PPF rules for NRIs, including contribution eligibility, interest accrual, and maturity treatment, are subject to change by the Government of India and relevant regulatory authorities. Readers, especially those with NRI, PIO, or OCI status, should verify current rules with their bank, the National Savings Institute, or a qualified financial advisor before making investment decisions. Financial Express is not responsible for any decisions made based on this information.