PPF Rules for Non Resident Indians (NRIs)

An overview of the rules related to Public Provident Fund Scheme for NRIs and how their change in status from resident Indian to NRI impacts them.

Public Provident Fund (PPF) is a long term investment option with attractive rate of interest and returns. The interest and the returns earned are not taxable under the Income Tax Act, 1961. Any person depositing an amount in his PPF account may claim deductions under Section 80C of the Income Tax Act on the amount deposited during a financial year. This article clarifies the Government regulations and policies related to PPF of Non Resident Indians (NRIs).

What Are the Rules Surrounding NRIs with Respect to PPF Account?

Overview
  • An NRI cannot open a PPF account in India.
  • However, a resident Indian who opens a PPF account and becomes an NRI later can continue with the active status of his PPF account.
  • Such NRIs can continue to invest up to Rs. 1.5 lakh in the account every financial year until the account reaches its maturity.
  • Upon the maturity of the account, that is, after the completion of the mandatory 15-year period, the NRI must close that account. The NRIs do not have the option of extending their PPF account beyond its maturity period.
  • However, if a resident Indian with a PPF account extends his account beyond the maturity period and becomes an NRI during that period, he can continue subscribing with the PPF account till the extended period of maturity. In such cases, the account cannot be extended once it reaches the extended maturity.
Withdrawals from the PPF Account

NRIs can fully withdraw the PPF account balance after the maturity period of the account, that is, 15 years. However, if a person is in need of funds and wants to withdraw before the maturity period is completed, the PPF scheme permits partial withdrawal of the account balance on the completion of six years from the date of opening of the account, subject to the following conditions:
  • Life-threatening ailment of the account holder
  • Serious disease to the account holder
  • Higher education of children
In case of a premature withdrawal, a penalty is levied on the interest applicable for the period for which the account has been held by the account holder. This penalty is in the form of 1% reduction from the interest rate applicable for this period.

Such partial or complete withdrawals are credited to the NRO account of the NRI.

What is an NRO Account?
  • A non-resident ordinary (NRO) account is a bank account opened in the name of an NRI in India to manage any income that is earned by him in India. Such income is saved in Indian currency itself.
  • According to the Income Tax Act, the interest earned on an NRO account is taxable at a rate of 30%.
  • Funds from an NRO Account can be repatriated after the payment of applicable taxes, with a cap of USD 1 million in a financial year.
Interest on the PPF Account

A PPF account receives interest calculated on the lowest monthly balance between the fifth day and the last day of every month. The current interest rate for the quarter 1 July 2021 to 30 September 2021 is 7.1% compounded annually. As per the latest Government regulations, the NRIs are eligible for interest at the same rate on their PPF account.

Taxability on the Interest and Returns from PPF Account

Interest and returns from a PPF account are exempt from income tax in India. However, the interest earned on the PPF account by an NRI is subject to tax when upon the completion of the maturity period of the PPF account, the amount in the original PPF account is credited to the NRO account of the NRI.

Who is the Regulatory Authority for Public Provident Fund?

The regulatory framework related to public provident fund is created by Ministry of Finance through its Department of Economic Affairs (DEA). DEA creates and modifies laws related to PPF time to time and announces the interest rate on PPF accounts for every quarter of the financial year.

The National Savings Institute (NSI) works under the DEA to promote and mobilize savings in the National Savings Schemes and Public Provident Fund Scheme of the Government of India. For this purpose, the NSI undertakes various activities, such as, national-level publicity of the schemes, printing of savings instruments, collection and collation of data etc.