Can an NRI continue his PPF?
One of the most common forms of investments for Indians is PPF. It is secured, and you know the exact returns on its maturity. Its long-term perspective also works well with a lot of investors. PPF is majorly risk-free and is tax-free as well, which attracts a lot of investors. However, things might change a bit if you are an NRI and have invested in PPF.
Sometime back the Department of Economic Affairs passed a ruling which put NRI’s at a back step. According to the modifications to rules, anyone who invests in PPF as a resident of India and later moves out of the country, the account will be closed. The rule was set to come into effect the moment an individual was deemed as a non-resident Indian or lost their resident status.
This had left a lot of NRIs confused and worried about their investments. But there is some relief for them as of now. On 23rd of February 2018, the DEA released a memo which kept the previous decision on hold. In simple words, NRIs can continue to hold their PPF accounts until it reaches its maturity.
Yet one cannot invest any additional amount once their residential status changes. The PPF is a 15-year scheme which has provisions for extending the maturity date in the block of 5 years. However, it is not applicable to non-resident Indians.
Can NRIs open PPF Accounts?
The short answer is No. NRIs cannot open new accounts once their residential status has changed. Prior to 2003, NRIs were allowed to make additional contributions to their PPFs. Even then, it was only possible if your account was active prior to the change of residential status. An amendment in 2003 meant, that fresh contributions to PPF were not allowed anymore. However, they can hold to existing PPF contributions till their maturity.
Which Account Can NRIs use?
NRIs have the option to use either fund in their NRO or NRE account to pay for PPF. According to the PPF, a minimum investment of INR 500 must be made on a yearly basis to keep the account active. Failing to do so will make your account dormant. To revive the same, one must INR 500 for each year that you have missed along with a penalty of INR 50.
There are possibilities that you might still be an NRI when your PPF matures. In such cases, you would need to withdraw the remaining amount. As already mentioned, NRIs cannot extend their PPF duration. If the maturity date of your PPF is over and you haven’t withdrawn the amount, it would continue as ‘extended without contribution’.
What this means is that your PPF account will continue to earn interests, but you do not have to adhere to the minimum INR 500 rule anymore. The extension will take place in a chunk of 5 years for an unlimited number of times, as per the rule books.
It is imperative that one takes a closer look at the taxation involved when they get into investments of any form. The case is no different when it comes to PPFs. If you are in India, the amount that you invest in PPF is tax deductible through Section 80C. And the returns that you receive on maturity is non-taxable as well, making them a worthy investment.
However, if you are an NRI and your PPF matures while you are in a different country, things pan out a bit differently. You most probably might have to declare the amount in your current residential country and pay appropriate taxes on the same.