Can NRIs still benefit from the Public Provident Fund (PPF)? This question has puzzled investors and experts alike, especially considering the unclear regulations that govern such investments.
The PPF is a long-term savings and investment scheme backed by the Government of India, designed to encourage residents to save for the future while offering attractive tax benefits and assured returns. With a minimum annual deposit of Rs. 500 and a cap of Rs. 1.5 lakh per financial year (April-March), it’s an appealing option for many. The interest rate, reviewed quarterly by the government, adds flexibility to this reliable instrument. But when it comes to Non-Resident Indians (NRIs), the situation changes. Let’s find out more about it.
Can an NRI open a PPF account?
In simple terms, an NRI (Non-Resident Indian) is not permitted to open a new Public Provident Fund (PPF) account. However, if you already hold an active PPF account opened during your time as a resident of India, you can continue to manage it. This means that you can make additional contributions, keep your investment active, or even close the account prematurely—provided it has been open for at least five years.
According to the current rules, upon the maturity of your PPF account, the proceeds can only be transferred to a Non-Resident Ordinary (NRO) account.
To remain compliant, it is essential to update your residency status with the bank or post office where your PPF account is held as soon as your status changes. Additionally, keep in mind that to keep your PPF account active, you must make a minimum annual deposit of Rs. 500.
What are the latest Implications for NRIs After October 1st 2024 Update?
The Department of Economic Affairs in India recently introduced significant changes to Public Provident Fund (PPF) account guidelines, specifically impacting Non-Resident Indians (NRIs). This regulatory update, effective October 1, 2024, focuses on how interest is accrued for PPF accounts held by NRIs, particularly for accounts that were opened before residency status changes were clarified or documented.
Under this new directive, active NRIs who hold PPF accounts will experience a substantial shift in the way interest is handled. Starting from October 1, 2024, any PPF account that does not comply with residency requirements will no longer earn interest. In other words, the interest rate on these PPF accounts will be reduced to 0%.
What are the Additional provisions under PPF?
Here are the new guideline provisions related to the PPF account.
- PPF Accounts Opened for Minors
For PPF accounts opened under a minor’s name, the interest paid will follow the POSA (Post Office Savings Account) rate until the minor reaches the age of 18. Upon reaching adulthood, the applicable PPF interest rate will take effect. The account’s maturity date will also be adjusted, with the maturity period calculated starting from the minor’s 18th birthday, aligning with PPF’s standard term structure.
- Multiple PPF Accounts
If a customer holds more than one PPF account, only the primary account will accrue interest at the scheme rate, provided the combined deposits do not exceed the annual limit (currently Rs. 1.5 lakh). The balance from any secondary accounts will be consolidated into the primary account. However, any amount exceeding the annual deposit limit will not earn interest, and the excess will be refunded with a 0% interest rate.
- Interest on Additional Accounts Beyond Two
If an individual has more than two PPF accounts, only the primary account will earn interest at the scheme rate. Any additional accounts beyond the second one are deemed ineligible for interest accrual from the date they were opened, effectively earning a 0% interest rate.
Conclusion
Though NRIs can still earn tax-exempt interest and make additional contributions to their existing PPF accounts, they are not permitted to open new ones. Upon maturity, the account proceeds can be transferred to an NRO (Non-Resident Ordinary) account in India, from where the funds can be repatriated to the NRI’s country of residence if needed. This pathway allows NRIs to continue benefiting from their existing PPF investments, even as they navigate the new regulatory landscape.
