Moving abroad? What happens to your Indian PPF and NPS Tier II investments?

But during the relocation phase, have you ever imagined what will happen to your long-term savings already parked in instruments such as the Public Provident Fund (PPF) and the National Pension System (NPS) Tier II account once you move abroad? 

While both PPF and NPS are long-term investment schemes, becoming a non-resident can change the rules for how you manage these accounts. 

If your residential status is going to change, understanding the rules and regulations applicable to your NPS or PPF accounts opened in India should be your clear focus, as not being aware of the rules may lead to financial challenges later. 

Moving abroad? What happens to your PPF account?

An NRI cannot open a new Public Provident Fund (PPF) account. At the time of opening the account, the applicant is required to declare that he or she is a resident citizen of India. 

However, where an individual opens a PPF account while qualifying as a resident and subsequently becomes an NRI, the existing account may be continued and contributions may be made until its applicable maturity date. 

The account cannot be extended or continued beyond maturity while the account holder remains an NRI. 

“Further, the benefits under the account are available on a non-repatriation basis. This position is governed by Rule 4(3) of the Government Savings Promotion General Rules, 2018, read with the Public Provident Fund Scheme, 2019. The change in residential status should be promptly intimated to the concerned bank or post office,” said CA (Dr.) Suresh Surana.

In accordance with paragraph 13(1)(c) of the Public Provident Fund Scheme, 2019, an account holder may alternatively close the PPF account prematurely on account of a change in residential status, subject to the account having completed five years from the end of the year in which it was opened. In such a case, the applicable interest is reduced by one percentage point for the relevant period.

“It is pertinent to note that the individual’s subsequent NRI status does not alter the tax exemption available in India. Interest credited to the PPF account and the amount received on partial withdrawal, premature closure or maturity remain exempt from income tax. With effect from 1 April 2026, the exemption is available under section 11 read with Sl No. 3 of Schedule II to the Income-tax Act, 2025,” added Surana.

While such amounts are exempt in India, the country in which the individual is tax-resident may tax its residents on their worldwide income. 

The applicable Double Taxation Avoidance Agreement between India and the country of residence needs to be examined to determine the allocation of taxing rights and the availability of any treaty relief. 

“Since no tax is ordinarily payable in India on PPF interest or maturity proceeds, a foreign tax credit may generally not be available in the country of residence. However, the tax treatment as well as the disclosure requirements would depend upon the domestic law of that country and the relevant tax treaty,” according to Surana.

An Overseas Citizenship of India (OCI) status does not make a person eligible to open a new PPF account. However, if an individual held a PPF account as an Indian citizen before acquiring foreign citizenship and OCI status, the change in citizenship affects the status of the existing account.

Moving abroad? What happens to your NPS Tier II account?

The National Pension System (NPS) offers two types of accounts — Tier I and Tier II. Tier I is the primary Individual Pension Account and serves as the default pension account, with applicable tax benefits. Any Indian citizen aged between 18 and 70 years can open a Tier I account, subject to NPS eligibility rules.

Tier II is an optional investment account available only to subscribers who hold an active Tier I account. Unlike Tier I, Tier II does not impose withdrawal restrictions and does not generally offer tax benefits.

NRIs and OCIs cannot open a new NPS Tier II account. Therefore, if you are an Indian citizen with an existing Tier II account and subsequently move abroad and become an NRI, you cannot continue contributing to the Tier II account as an NRI. You will need to close the account and withdraw the funds or transfer the balance to your Tier I account, subject to applicable NPS rules.

However, NRIs are eligible to open an NPS Tier-1 account only, as per PFRDA guidelines. If you want to open a new NPS account, you must be an Indian citizen even if residing abroad. The minimum entry age is 18, and the maximum age limit is 70 at the time of joining. 

In this situation, contributions must be made towards NPS through NRE or NRO bank accounts. 

To open the account successfully, the NRI must comply with the KYC norms as per PFRDA guidelines. Overseas Citizens of India (OCIs) are allowed to invest in NPS; however, Persons of Indian Origin (PIOs) are not eligible to invest in NPS, as per PFRDA. 

NRI NPS: How Tier II taxation differs from Tier I

The PFRDA’s current guidance states that NRIs and Overseas Citizens of India with a Tier I NPS account are not eligible to activate a Tier II account.

The tax treatment for Tier I and Tier II NPS accounts is as follows:

Particulars	NPS Tier I	NPS Tier II
Subscriber’s contribution	Deduction up to Rs. 1.50 lakh under section 80CCD (1). Additional deduction up to Rs. 50,000 under 80CCD (1B).	Generally, no deduction. Central Government employees may claim deduction for the notified Tier II Tax Saver Scheme under section 123 read with Schedule XV, paragraph 1(w), subject to a three-year lock-in.
Employer’s contribution	Old tax regime: Employer NPS contribution up to 10% of Basic + DA, subject to the Rs 7.5 lakh overall limit, is eligible for deduction under Section 80CCD(2).New tax regime: Employer NPS contribution up to 14% of Basic + DA, subject to the Rs 7.5 lakh overall limit, is eligible for deduction under Section 80CCD(2).	No deduction.
New tax regime	Only the employer’s contribution under sections 124(1) and 124(2) is deductible.	No deduction is available.
Partial withdrawal	NPS Tier I allows you to make partial withdrawals up to three times during the investment period, subject to specific conditions. These withdrawals are tax-free up to 25% of your own contributions under Section 10(12B) of the Income Tax Act, 1961.	No specific exemption.
Exit or closure	Upon reaching the age of 60, your NPS Tier I account typically enters the superannuation phase. You can withdraw up to 60% of the accumulated corpus as a lump sum, and this amount is exempt from tax under Section 10(12A) of the Income Tax Act, 1961. The amount used to purchase an annuity is not taxed at that stage under Section 124(9).	No specific exemption.

PPF, NPS Tier II after becoming NRI: Key rules to know

According to Adhil Shetty, CEO, BankBazaar, the first step is to update your residential status, KYC and overseas address with your banks and financial institutions. Keep your PAN and passport details updated as well. 

An existing PPF account can continue only until its original maturity. When the proceeds are received, any transfer overseas will be governed by applicable FEMA and RBI rules. 

Do not assume that crediting the proceeds to an NRO account automatically makes them freely repatriable. 

In the case of the National Pension Scheme (NPS), NRIs and OCIs can hold Tier I accounts, while Tier II is not available to them. Keeping these details updated can help avoid compliance issues later.

Disclaimer: This article is for informational purposes only and should not be considered investment advice. Readers should review the final terms and conditions issued by PFRDA before investing.

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