HNI Money. How PPF works for NRIs

The Public Provident Fund (PPF) is one of the safest long-term investment options for most people.

The investments made into this instrument are eligible for tax deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act.

The interest earned from investing in PPF is also tax-free. Currently, PPF investments earn an interest rate of 7.6 per cent.

But if your company decides to send you abroad or if you shift out for a work opportunity overseas, what happens to your PPF investment?

An amendment to the PPF scheme was made in October 2017 for the PPF accounts held by non-resident Indians (NRIs). A subsequent withdrawal of the same in February this year has created confusion among NRIs. Here, we take a look at what has changed and what has not for NRIs holding PPF accounts.

The background

According to the Income Tax Act, a citizen of India becomes an NRI if he stays less than 182 days in a financial year in India or less than 365 days in total in the preceding four years.

As a rule, NRIs cannot open fresh PPF accounts. This holds good even today.

But the terms and conditions would vary slightly if you had opened a PPF account when you were a resident Indian, but later became an NRI during the tenor of the scheme or any time during the 15-year investment period.

The amendment made in October to the PPF scheme stated that the PPF accounts shall be deemed to be closed as soon as a resident Indian becomes an NRI.

Also, such accounts earn interest at the rates applicable to the Post Office Savings Account until they are actually closed.

The interest earned by a Post Office Savings Account currently is just 4 per cent, much lesser than the 7.6 per cent offered by the PPF. However, this amendment was suspended this February, thus benefitting NRIs holding PPF accounts.

That is, if you were a resident Indian and later became an NRI in the middle of the PPF tenure, the scheme can be continued till the maturity period of 15 years, but with some limitations.

The restrictions

You can invest in the PPF scheme only through your NRE/NRO/FCNR account, if you become an NRI.

The tenor of the PPF account for a resident-turned-NRI is fixed at 15 years from the date of opening. That is, unlike a resident Indian who can continue investing in a PPF account in blocks of five years after 15 years, NRIs cannot extend their investment beyond 15 years.

NRIs are allowed to invest in the PPF account until maturity only on a non-repatriation basis. That is, during the 15-year tenor of this investment, NRIs cannot convert the money from this investment into foreign currency and take it abroad. This restricts the usage of the interim benefits like partial withdrawal and loan facilities that are available to resident investors.

Partial withdrawal from the PPF account is allowed for resident Indians after completion of five years from the date of the first investment. Similarly, loans can be availed of against the PPF account for locals. NRIs holding PPF accounts are also allowed to get these benefits. But they have restrictions when it comes to the usage of these benefits. NRIs cannot convert money from either partial withdrawal or the loan into foreign currency and repatriate it abroad. Instead, they can only use the money within the country.

However, once the investment matures after 15 years, the money can be sent overseas through the liberalised remittance scheme for investing abroad, if the investor becomes a resident Indian by that time.

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