In October 2017, an amendment to the PPF account held by NRI was made which said "if a resident who opened an account under this scheme subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes a non-resident..."
At the same time it stated that until the PPF account is actually closed it shall fetch return at par with post office savings account i.e @ 4% which is significantly lower than what is earned in case of PPF.
But the ruling was later withdrawn in February 2018. So, here is a closer look at what are the guidelines for NRIs maintaining PPF account in India.
PPF is a long-term safe investment bet that currently earns an interest rate of 7.6% per annum. The tax efficient avenue qualifies for deduction in respect of investment made under Section 80C of the Income Tax Act up to a maximum of Rs. 1.5 lakh in a financial year. Also, the interest earned from it is tax-exempt.
As a rule an NRI citizen cannot make a fresh investment in PPF account. But against the earlier notification that came in October last year, he or she can continue with his investment in the account if the same was opened when he was an Indian resident.
The Income Tax Act considers an Indian native as an NRI if his period of residence in India is less than 182 days in a FY or less than equal to 365 days in total in the last four years.
Certain limitations have been imposed in respect of NRIs maintaining PPF account in India or we can say that rules for resident and non-resident Indians differ on some grounds.
1. For resident Indians turned NRIs, the maturity term of PPF account remains fixed at 15 years from the account opening date i.e. unlike resident Indians they are not allowed to continue with investment in the account in blocks of 5 years after the completion of 15 years.
2. Investment by NRIs towards PPF account has to be done through their Non-resident external or non-resident ordinary or FCNR account.
3. Though partial withdrawal and loan option is also available to a non-resident Indian maintaining PPF account similar to a resident Indian. There exists a limitation in the sense that the proceeds from both of these options can only be utilized in India and are not allowed to be converted into foreign currency and repatriated abroad. But on maturity of the investment, the proceeds can be repatriated overseas under the liberalised remittance scheme or LRS.
4. Also, for whole of the investment tenure of PPF account, NRIs are allowed investment only on a non-repatriation basis i.e the money under the investment cannot be converted into foreign currency and taken abroad.