NRI Guide: How Taxes Apply on Your Provident Fund Accounts in India?

As a non-resident Indian, having a provident fund account back in India is a wise investment decision as it provides safe and guaranteed returns. Moreover, it is considered one of the most tax-friendly investments. 

While Public Provident Find (PPF) is a long-term saving scheme backed by the Indian government that matures in 15 years, Employee Provident Fund (EPF) is a retirement saving scheme for salaried employees where both the employee and employer contribute to the scheme. A total investment of 24% of your basic salary goes directly to the EPF. 

As per the new guidelines issued in 2019 by the government of India, as an NRI you cannot open a new PPF account and invest in it. But if you have already opened a PPF account before becoming an NRI, you can continue to hold it until the scheme matures. PPF accounts are tax-free in India, but EPF accounts are not. 

Do you know how much taxes the Indian government levies on your Employee Provident Fund investments? 

As an NRI, you will continue to earn interest on your existing EPF account until you turn 58. On completion of five years of service, you can withdraw the balance after 60 days if you are not employed. You don’t have to wait until 58 years of your age. 

For FY2020-21, EPF offers attractive interest rates of 8.5%. This indicates that the maturity amount is tax-free under certain conditions. The interest accrued from your contribution is also tax-exempt. 

However, since 1 April 2021, if you contribute over Rs 2,50,000 to your provident fund account, you will be taxed as per the slab rates against your excess interest on the contribution above Rs 2,50,000. 

Despite that, EPF is a convenient way of saving that brings benefits in the form of a pension. EPF is also a low-risk investment option as it is backed by the government. If you are employed at a private organisation, EPF is the only beneficial retirement planning tool for you. 

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