The most recurring doubt amongst NRIs has to be this: Can NRI invest in PPF? NRI PPF Account has turned out to raise questions on every platform. In this article, we will answer these questions regarding PPF account for NRI once and for all.
What is PPF?
PPF (Public Provident Fund) scheme was launched in 1968 by the Finance Ministry’s National Savings Institute. The main objective of the PPF scheme is to help individuals make small savings and provide returns on the savings. The PPF scheme offers an attractive rate of interest (up to 8%*) and no tax is required to be paid on the returns that are generated from the interest rates. PPF account for NRI is thus a risk free mode of investment.
Eligibility for PPF
The eligibility criteria for a PPF account for NRI are mentioned below:
- Indian citizens are eligible to open a PPF account
- An individual can open only one account under his/her name. However, another account can be opened by the individual on behalf of a minor
- Non-resident Indians (NRIs) are not allowed to open a PPF account
Can NRI invest in PPF?
Non-resident Indians are not permitted to open or operate a NRI PPF account in India. However, if a person opens a PPF account as an Indian citizen and later becomes an NRI then the account will remain active.
NRI PPF Rules
Becoming an NRI doesn’t take away the benefits of PPF for an individual. NRIs can continue to subscribe to their PPF Accounts if they opened the account when they were Resident Indians. Here are some of the NRI PPF Rules to ponder for PPF account for NRI:
- The interest earned is tax exempt under Section 10, while the principal qualifies for a deduction under Section 80C of the Income Tax Act, 1961.
- Any amount deposited above ₹1.5 lakhs won’t carry any interest or tax benefits, and will instead be refunded to you without interest.
- A minimum deposit must be made every financial year to keep the account active. PPF deposits can be done up to 12 times a year through your bank or local post office (although many choose to do a one-time annual lump sum). Deposits can be made in cash, cheque, PO, DD or through online fund transfers.
- For monthly deposits, you have to make sure you do it before the 5th of the month to ensure full interest credit for the month.
- If you want to make a withdrawal from PPF, it can be done from the 7th year of your initial maturity period. The withdrawal would be subject to conditions, and a complete withdrawal is available only after maturity. Loans are also available after 3rd year.
- PPF renewals are allowed within 1 year of the full maturity date and can be done for 5-year blocks at a time.
What happens to the PPF account for NRI after Maturity?
As an NRI, you can’t extend the PPF Account post maturity. There are certain pointers that you need to keep in mind regarding the maturity of NRI PPF Account:
- You can’t extend your PPF Account post maturity
- No interest shall be payable after maturity
- It is mandatory for NRIs to close the PPF Account once it matures
- You can not let your NRI PPF Account as it is without contributions
- If you keep contributing to your NRI PPF Account after maturity by not informing the bank about the change in his/her Residential Status then no interest shall be payable post maturity on the money you contribute to your PPF Account (Your status can be tracked using regular KYC from banks)
Can PPF withdrawals be repatriated?
Earlier in 2003, NRIs were permitted to continue investing in existing NRI PPF accounts with a permission on a non-repatriable basis, that is, NRIs could not remit proceeds of PPF withdrawals out of the country. Eventually, the RBI announced a Liberalized remittance scheme (LRS) in 2004 according to which NRIs could remit up to USD 1 million per financial year from their NRO accounts. Therefore, you can credit the withdrawal proceeds of your PPF account into the NRO account and the balance in the NRO account can be repatriated abroad up to a limit of USD 1 million per financial year. The process of repatriation from NRO Accounts must be followed for the same.
PPF account for NRI: Taxation
There are two levels of taxation on PPF for an NRI. One in India and another in his/her country of residence.
- In India: Both Principal withdrawals and interest earned are tax-free in India along with deduction available under section 80C, which simply means that if you have any source of taxable income in India such as rent from a property then under this section you can reduce your tax payout by investing in PPF.
- In the country of Residence: You need to consider the tax rules that apply in the country of your residence. In countries like the US, the interest earned on PPF is taxable. Rajesh Vaidya, CPA and Senior Accountant at Florida based Raju Maniar CPA firm explains, “PPF does not qualify as a retirement account under the US tax laws and therefore the interest will be taxable in the US. Now, the question is whether you should pay tax every year on the accrued interest or on the entire interest at the time of withdrawal. While there is no rule on this, a taxpayer can take a view depending on what is beneficial to him. For instance, if you expect to be in the high tax bracket when you withdraw, then you might pay higher tax at that time. In such a case you might want to pay tax every year on accrued interest. But whatever method you choose, ensure that it is followed consistently.”
NRI PPF Account: PPF Calculator for NRI?
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PPF for NRI: FAQs
A- No, any person who exists as a non-resident Indian does not qualify to open this account. NRI status disqualifies an individual from opening, operating and managing a PPF account.
A- If a PPF account was created by an Indian national (resident Indian) who later became an NRI, he or she can continue to enjoy the benefits and subscribe to the fund till maturity (15 years). Nothing will happen to the account, it will not be closed, surrendered, or deemed invalid. The owner can claim benefits post maturity.
A- Yes. An NRI can transfer funds in their PPF Account from their NRE or NRO bank accounts.