The Public Provident Fund is a savings-cum-tax-savings instrument in India that was introduced in India by the National Savings Institute of the Ministry of Finance in 1968. The intention behind introducing this scheme was to mobilize small savings by offering an investment with reasonable returns that are combined along with income tax benefits.
In December 2019 the government of India notified the Public Provident Fund Scheme, which replaced the 1968 scheme under which it was made clear that NRI cannot open a PPF account in India. Though a resident Indian citizen can open a PPF account and gain an NRI status in the future and can hold on to that account till its maturity. They can invest up to 1.5 lakh each year and can invest this amount every year until its maturity. On maturity, an NRI must close the PPF account, with no exemptions.
The maturity period for standard PPF is 15 years. Hence, an NRI cannot extend a PPF account. If the rules are not followed by the NRI and the account is left open, no interest is payable on such an account. If NRI continues with the payments to PPF, without giving any notifications to the concerned bank about their change in residential status, from a resident Indian to an NRI, no interests are payable on the payments made to the account after its maturity. All the banks maintain the updated KYC documents on regular basis to be informed of the customer’s status of residence.
As a resident Indian, there is a chance for an individual to extend the PPF account after its maturity. It can be done in blocks of five years after maturity. After the account is extended, if the person gains the status of an NRI, they can hold on to the account till the new timeline of maturity. No further extension can be done.
Two major types of withdrawals can be done from a PPF account. They are complete withdrawals at maturity or partial withdrawals. In the case of NRIs, partial withdrawals can be done by following special rules. Withdrawals can be done from the seventh year and onwards. Special rules apply when such withdrawals are done. Loans are applicable from the third year onwards. A complete withdrawal can be done only on maturity. Partial as well as complete withdrawals can be deposited to the NRI’s NRO (non-resident ordinary) account. While partial withdrawals have prohibitions on repatriation, maturity proceeds may be repatriated.
NRIs can close PPF account prematurely on completion of 5 years. The money can be withdrawn from such accounts prematurely after the completion of 5 years for the purpose of a child’s education or in the case of a relative suffering from a life-threatening disease. The amount withdrawn prematurely from such accounts is not taxable in India but might be taxable in the country of residence of the NRI. The deduction can also be claimed under section 180 C for PPF deposit if the income tax return is filed in India.
PPF is entirely tax-free which makes it a popular mode of investment in India. The returns generated from the funds are not taxable. As on maturity, an NRI has to close the account as no other option is available, he must withdraw the proceeds on attaining maturity in full and close the account. Taxes are to be paid on an NRO account as per the NRO account provisions as the credit of the aforementioned amount happens to the NRO account.
Apart from a PPF account, there are so many options for an NRI to invest in India such as Fixed Deposits, Direct Equity, Mutual Funds, Real Estate, National Pension Schemes, Unit Linked Insurance Plan, Government Securities.
However, NRIs are not allowed to open a PPF account or operate or run such an account as per the laws of the country. Balance in the PPF account is not subjected to attachment under any order or decree of the court. Though Income Tax and other Government authorities can attach the account for recovering the tax dues. No interests are calculated for the year when the PFF account stays inactive. Once it gets revived, interest is calculated on the balance amount held at the time of revival.
The PPF scheme is a highly beneficial tax-saving and investment instrument. It offers incredible interest rates and compounding benefits upon maturity period ie 15 years. This option can be widely used by Indian residents.
