PPF for NRIs- What you need to know in 2021

With its income tax benefits, low-risk, and guaranteed returns, the PPF has become a widely popular investment vehicle for many Indians. Backed by the Indian government, the PPF is seen as a way to help build savings for retirement while enjoying the tax benefits today.

You can open a PPF with as little as ₹100. The annual minimum deposit amount to keep the account active is ₹500, while the maximum that can be deposited in 1 year is ₹1.5 lakhs¹.

A crucial feature of the instrument is its long time horizon- it has a minimum tenure of 15 years, and allows for indefinite extensions of 5 years at a time. One catch is that you can not close the PPF before maturity. But for long-term conservative investors looking for tax-free returns, it is a win-win.

As of March 2021, the PPF interest rate currently stands at 7.10% per annum².

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Can NRIs invest in a PPF?

As of now, the bad news is that an NRI can only invest in an existing PPF account, assuming it was opened while still an Indian resident, and not a new one.

Over the last few years, there has been some uncertainty for NRIs with existing PPF accounts. In 2017, the government ruled that the PPF accounts would be closed for individuals who became an NRI during the maturity period. Under this law, the close date would be reflective of when the tax residency status changed to NRI. But, in 2018 this law was revoked by the Department of Economic Affairs³.

So, what if you or your parents opened one while you were still an Indian resident? In this case, you can still contribute to your PPF in India on a non-repatriation basis until it’s 15th-year maturity, or whenever the subsequent maturity date is. Irrespective of your current residential status, any amount that is deposited towards an open PPF will still be considered tax-exempt under Indian income tax law.

Can NRI open a PPF account?

A current Non-Resident Indian is not able to open, or manage, a new PPF account¹. The only way to operate a PPF account is for the individual to have opened the account when he or she was an Indian resident- before they changed their tax status to that of an NRI.

If you are a current Indian resident (but plan to become an NRI), you can still open a PPF in your name, or on behalf of a minor that you are a guardian of. To be able to check your PPF account online, it is suggested that you open the PPF within the same bank that you currently do your online banking with and have the accounts linked.

If somehow you were able to open a new account as an NRI, or an account is opened in your name while you are an NRI, it is highly recommended that you get in touch with the concerned authorities to avoid any legal action.

PPF rules for NRIs

If you opened a PPF and then later become an NRI, you can contribute and enjoy all the benefits of a PPF. No need to worry about the account being closed or frozen when your tax status changes. Your ongoing contributions will follow the same rules that apply to Indian citizens. Here is a quick breakdown of PPF rules for NRIs to note¹:

• The interest earned is tax exempt under Section 10, while the principal qualifies for a deduction under Section 80C of the Income Tax Act, 1961.
• Any amount deposited beyond the ₹1.5 lakhs maximum won’t carry any interest or tax benefits, and will instead be refunded to you without interest.
• The minimum deposit must be made every financial year to keep the account active. Deposits into a PPF can be done up to 12 times a year through your bank or local post office (although many choose to do a one-time annual lumpsum). Deposits can be made in cash, cheque, PO, DD or through online funds transfer.
• If you are making monthly deposits, you have to make sure you do it before the 5th of the month to ensure full interest credit for the month.
• If you do want to make a withdrawal from your PPF, it can be done after year-7 of your initial maturity period. The withdrawal would be subject to conditions, and a complete withdrawal is available only after maturity. Loans are also available after year-3.
• If you have forgotten to renew your PPF, renewals are allowed within 1 year of the full maturity date and can be done for 5-year blocks at a time.

When transferring money internationally, think Wise

Have a PPF account in India? Wise is a great tool to help you make your annual or monthly contributions from overseas. With over 4 million customers, Wise is the go-to platform to send money home, without having to load up on bank fees. Using the real mid-market exchange rate - not the rate that each bank decides they want to charge you- your money will land in your Indian account without the long haul flight.

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Sources used for this article

All sources checked as of 2 January, 2020

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