Once you become an NRI all rules change. Starting from your investments to your bank account, rules change for everything. PPF is a very popular scheme amongst investors because of the low risk and high returns to the investor. PPF has a lock-in 15 years and has average returns of about 7.5%. Now lets read about what happens to PPF Account if you become NRI.
Can NRIs Invest In PPF?
NRIs currently can only invest in the preexisting accounts of PPF. An NRI cannot open a new account and then invest.
There is a lot of confusion right now upon the investing of NRIs in the preexisting PPF account. In 2017, the Government stated that if the person becomes NRI during the maturity period of the PPF account, then the account shall be closed. But in the year 2018, this act was revoked back by the Department of Economic Affairs.
So, here is the conclusion, any person having made an account when he was an Indian citizen and then getting converted to NRI can keep investing till the maturity period. During the completion of a 15 year maturity period, the person keeps investing, and after maturity, the person will receive money on a repatriation basis.
Can NRI Open PPF Account?
Currently, a non-resident Indian or an NRI cannot open a PPF account. The only way an NRI can manage and invest in PPF is a preexisting account opened before changing the status from Indian resident to NRI.
If you are currently an Indian citizen but plan to become an NRI in the future, then you can still open an account. It is more convenient to make a PPF account in the same bank where you have internet banking.
If someone assures you to make a PPF account when you have status as NRI, then please inform the government authorities about the same. This may cause a legal action if you make a PPF account with such people.
PPF Rules For NRI
If you have become NRI before the maturity of PPF scheme, then you don’t need to worry about your account becoming frozen or closed. You will be implied with the same rules as of any Indian citizen until the completion of the term.
i. The interest you earn is exempted under section 10; hence the earnings you make from PPF are tax-free.
ii. Investments are also exempted from taxes under section 80c.
iii. If you deposit any amount above 1.5 lakhs, they will not earn any interest and will be returned to you without any additions or deductions.
iv. You should make minimum deposits each year to keep your account active. You can do a maximum of 12 deposits each year through your post office or bank.
v. If you don’t want any loss in the interest, you earn to make sure you deposit the money before the 5th of each month. This is only the case in the condition of monthly deposits.
vi. PPF also gives you an option to withdraw and take loans against your investments. You can start withdrawing after 7th year, however, you can only partially withdraw your invested amount. And you can start taking loans after the end of 3rd year; you can take loans up to only 25% of the deposit amount.
vii. After maturity, you can renew your PPF account within a year of the completion of the term. You can renew only up to extra 5 years.
The 2017 NRI Notification
In October 2017, The government released a notification stating that the NRI needs to close their PPF account on the day they change their residential status. However, if they wished to continue the account they would be given interest according to the current rate of Post Office Saving Account(currently 4%).
After that, In 2018, the government revoked the rules and set up some new guidelines as follows
i. The NRI cannot extend their PPF account after the completion of 15 years.
ii. Interest rate is reviewed and can be changed in every quarter.
iii. The earning you make from PPF account is not taxable
Which Account Will NRIs Use?
NRIs have the choice to use either fund in their National Reconnaissance Office or NRE account to acquire PPF. In line with the PPF, a minimum investment of the agency five hundred should be created every year to stay the account active. Failing to try therefore can build your account bestowed. To revive constant, one should have to pay five hundred for every year that you simply have lost alongside a penalty of fifty.
Here are some unit prospects that you simply would possibly still be an NRI once your PPF matures. For those cases, you’d withdraw the rest quantity. As I mentioned before, NRIs cannot extend their PPF length. If the date of your PPF is finished and you don’t withdraw the remaining amount, then it will be extended rather than contribution. What this suggests is that your account in public Provident fund can still earn interests; however, you don’t need to adhere to the minimum agency five hundred rule any longer. The propagation can present itself during a chunk of five years for an infinite range of times, as per the acts.
Taxation On PPF account
One must take a better cross-check the taxation concerned before they get into any type of investment. The matter is not different once it involves public provident funds. If you’re in the Republic of India, the number of the amount which you simply invest in PPF is tax-deductible under Section 80C. And also the returns that you simply receive on completion of the scheme, then it is non-taxable, creating them a costly investment
Closing Your PPF Account
To close your public provident fund account you have to go to the bank branch in India. There you have to submit a copy of your ID proof, PPF withdrawal form if you have any check then that and the passbook. For here you can easily understand that you have to go to any Indian Bank and have to submit all the needed documents and then the amount will transfer to your NRO account.
But if for any cases you will not be able to come to India and can’t go to the branch then you have to follow the instructions provides below:-
a. At first, you have to download the PPF withdrawal and then you have to fill it.
b. Then you have attached some important documents with that like your ID proof, address proof, and some more important documents.
c. Because you are not able to come so you have to write an Authorization letter, describing your representative.
d. After that, you have to send all the needed documents to your representative, who is in India.
e. Then your representative must have to verify and attested the importance of documents by the bank manager.
f. Then the representative has to submit all the documents to the bank where your PPF account is.
g. And then your money will transfer to your NRO account.
Procedure For Withdrawal
There are conditions under which you can prematurely close or withdraw from your PPF account.
In the case, if your children are the primary account holder, you can close the account after 5 years to pay for higher school fees of your children.
Another condition under which you can withdraw the funds is the medical illness, where you or your loved ones is diagnosed with a fatal disease.
The funds are Non-Repatriable which means that this money can’t be sent abroad.
In case NRI closes the account he needs to submit the PPF withdrawal form, PPF passbook, photo identity and a cancelled cheque from the NRO account where you wish to transfer the funds.
The documents need to be attested by the bank’s manager before they are submitted. After the completion of the process, your money will be transferred to the NRO account
The limitations for the PPF account:-
The PPF account isn’t identical to NRI. The principles are completely different for them. There are limitations.
- Non-Resident Indians cannot carry on finance in the PPF account once it will mature. The NRI will keep the PPF account without contributing to the account whereas Indian individuals can continue the PPF account with new deposits.
- Non-resident Indians have the only choice they can only contribute by their NRE, NRO, FCNR account into their PPF account.
- Like Indian residents, Associate as an NRI may also withdraw partial quantity from the PPF account. However, the quantity can’t be transferred back to their own country. The NRI must have to consume this quantity solely in Asian nations. However, the NRI can transfer back the amount by the maturity take via the NRO account.
What Is PPF?
Public Provident Funds(PPF) gives multiple crowd-friendly features and easy accessibility; hence it has gained popularity in the market.
It has a low risk and gives stable returns. If the safe-keeping of your money is the prime goal you want to secure, then PPF is best for you. It is usually a long-term investment giving stable and high returns.
Features Of PPF
- PPF has a maturity lock-in period of 15 years. During this period the depositor cannot withdraw complete funds. After maturity, the period of the policy can be extended for more 5 years.
- The minimum investments that can be made are 500, and the maximum is 1.5lakhs. In these funds, the investor can either do a lump sum payments or in SIP. The SIP investments can be narrowed only up to monthly payments.
- On can also get loans against their deposits in PPF. The loan can only be availed from the start of 3rd year to the end of the 6th year from the starting date. Loan tenure can be a maximum of 36 months, and only a total claim of 25% can be made on the investments.
Tax Benefits Of PPF
Similar to ELSS, PPF also has tax exemptions under section 80c. The total amount that can be invested in one financial year is 1.5lakhs, and the same is the tax deductions that can be made in PPF.
Your earnings on the PPF are exempted from any tax. So we can say that PPF is completely tax-free. What you deposit and whatever you earn is not applicable for taxation so even after maturity is the entire amount is not taxable.
Frequently Asked Questions (FAQs)
1. Can an NRI open a new PPF account?
No, an NRI cannot open a new PPF account.
2. I have recently become NRI; can I continue investing in my account?
According to the current guidelines of the government, NRI can keep investing and earning from The PPF account on a Non-Repatriable basis.
3. Can I extend my PPF account term period after maturity?
No, an NRI cannot extend its term period after completion of 15 years.
4. How is taxation done on earning made by the PPF account?
Under section 10, the earning you make are not taxed.
5. How are investments taxed in the PPF account?
The investments you make in the PPF account are deductible under section 80C.
6. Where can NRI transfer money after the maturity of its term?
After the completion of the maturity of 15 years, the NRI can transfer their funds to NRO or NRE account.
7. After how many years can I avail loans against PPF investment?
After completion of 3 years, NRI can avail loans against their PPF investment.
8. When can I start withdrawing money from the PPF account?
After the completion of 7 years, you can start withdrawing money from your PPF account. However, you cannot completely withdraw money, and the money you withdraw is subject to terms and conditions.
9. What are the maximum deposits you can make in a year in PPF?
In PPF, you can make monthly installments, i.e., highest of 12 installments per year. However, you also have an option to make lump-sum payments once a year.
10. What is the current PPF rate?
Current PPF rate is 7.1% and is changed by the government every quarter.
There was a lot of confusion about whether the NRIs can invest in PPF after the release and revoking of the RBI notification. But as we discussed, an NRI will avail almost all the benefits as of an Indian citizen.
PPF has given good returns in the past; NRI does not get so high interest in any other schemes. Investing in PPF before changing the status to NRI makes sense.