The public provident fund (PPF) is a popular savings scheme from the government of India that provides safe and guaranteed returns and one of the most tax-friendly investments. However, as a non-resident Indian (NRI), you are not allowed to open a new PPF account under the Public Provident Fund Scheme, 1986.
But if you already hold a PPF account before becoming an NRI, you can continue to subscribe to it until the scheme’s maturity is on a ‘Non-Repatriation Basis.’
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What are the then and now rules for PPF? Let’s have a look.
2017 PPF Rules
As per a government notification released on October 3, 2017, an NRI needs to close his PPF account when he gets a green card in another country. However, the amended PPF rules also stated if the NRI chooses to continue the account, the interest rate accrued would be less to the rate applicable to the Post Office Saving Account, which is currently 4% annually.
Before these rules came into effect, NRIs who had a PPF account as an Indian resident were allowed to invest in the fund through an NRO account, enjoying the same interest rate given to a regular resident of India, which was around 7.8% per annum as of 2017.
Making amendments to this rule in 2018, the government set out revised guidelines for existing PPF account holders. Taking your PPF balance under consideration, you would require an NRO account to transfer the balance amount.
On December 12, 2019, the government replaced the 1968 scheme with the Public Provident Fund (PPF) Scheme, 2019 under Section 3A of the Government Saving Promotion Act.
Under this scheme, NRIs are barred from making fresh deposits to their PPF account. However, they can subscribe to the pre-existing accounts opened when they were Indian residents until the fund’s maturity. The tax laws thus remain the same, imposing zero tax.
Although proceeds are tax-free in India, NRIs would have to check how they would be taxed in their host countries.
Reserve Bank of India’s regulations notably requires NRIs to convert all their resident savings and deposit accounts to non-resident external or non-resident ordinary accounts upon their departure from India when they move and settle down in foreign countries.