PPF for NRI’s?

PPF (Public Provident Fund) serves as a robust long-term investment avenue in India, offering fixed interest income and tax benefits. While typically accessible to Indian citizens, NRIs face specific regulations and conditions when it comes to opening and maintaining PPF accounts.

HERE ARE SOME THINGS YOU MUST KNOW….

PPF (Public Provident Fund) is a long-term saving and investment instrument in India.

Which results in long term benefit to the account holders as they cater a fixed bearing interest income along with the tax benefits.

General Applicability / Eligibility to open a PPF account is :

Any Indian citizen above the age of 18 years.

Including minor’s account held by their parents. Maximum Limit-1

Ineligible Person

• HUF (Hindu Undivided Family)
• NRI (Non-Resident Person)

PPF Interest Benefits (Minimum sum assured is Rs 1,50,000)

PPF Tax Benefits:

Can an NRI open a PPF account in India?

Answer: Primarily, NRI’s were restricted with initiating the PPF accounts.

In October 2017, the Ministry of Finance issued a notification stating that if a PPF account holder becomes an NRI during the tenure, the account will be deemed closed from the day their residency status changes. However, this notification was subsequently withdrawn. As a result, the previous rules allowing NRIs to maintain and contribute to their existing PPF accounts were reinstated.

However, as PPF account stands out as a popular investment with interest, tax and various secured benefits.

The person who was then residents but become NRI later can continue the invest in PPF accounts of their respective banks or post offices and on the maturity the proceeds shall be directed to their NRO (Non-Resident Ordinary) or NRE (Non-Resident External) accounts ensuring compliance with FEMA (Foreign Exchange Management Act) regulations.

The regulatory adjustments have now allowed for continuing the fresh investment for NRI’s in their PPF accounts by complying certain conditions as specified.

Such can be continued until the term of maturity or permanent account closure.

Conditions to be complied with:

• Updating the residency status of the account-holder with the bank or post office.
• Minimum deposit of Rs.500 annually is required to be deposited in PPF account to say active.

Interest and Tax Benefits for NRI’s

• Rate of Interest on PPF is same for resident as well as NRI’s.
• Maturity on PPF account will be exempted under section 80C maximum up to 1,50,000 under Income Tax Act,1956 and the interest accrued on such account are Tax-Free income.

Common Questions for an NRI

Q.1 Can an NRI partially withdraw from the PPF account?

Ans.: Yes, however withdrawal only up to 50% is permissible beyond with penalty shall be leviable.

Q.2 Can loan be availed to NRI against PPF account?

Ans.: Yes, however loan be availed during the 5^th or the 6^th year of PPF holding from the date of opening the PPF account.

Maximum loan can be availed is 25% of closing PPF balance at the end of 3^rd Financial year.

Q.3 Can an NRI prematurely close the PPF account?

Ans.: Yes, However the Interest credited will be 1% lower than the applicable interest rate to be accrued from the date of opening the account.

Conclusion

While NRIs face certain limitations regarding PPF accounts, those with existing accounts opened during their resident status can continue to enjoy the benefits. Understanding these rules and maintaining compliance ensures that NRIs can leverage the advantages of PPF for secure, long-term financial growth

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Authors: Vanshika Gandhi | Associate Consultant | Email: [email protected] | Contact: +91 98709 25375