Can NRIs invest in PPF Accounts?

Introduction

If you opened a PPF (Public Provident Fund) account while living in India and have since moved abroad, you may be unsure about how the rules apply to you as an NRI. Can you continue making contributions? What happens at maturity? Is it possible to open a new account for your family?

This guide covers everything NRIs need to know about PPF accounts as a non-resident.

Table of Content:

• Can NRIs Open New PPF Accounts?
• What are the Current PPF Rules for NRIs?
• How do withdrawal and repatriation work?
• What are the premature withdrawal options?
• What are the best alternative Investment options for NRIs?
• Conclusion
• FAQ

Can NRIs Open New PPF Accounts?

No, NRIs cannot open new PPF accounts. However, if you opened a PPF account while you were a resident Indian, you can continue to operate it until maturity. This means your existing account remains active, but you cannot:

• Open a fresh PPF account after becoming an NRI
• Open PPF accounts for family members who are also NRIs
• Transfer your account to another person

What Are the Current PPF Rules for NRIs?

Once you become an NRI, your existing PPF account operates under modified rules:

• Contribution Limits: The contribution limits remain the same. You can invest between ₹500 (minimum) and ₹1.5 lakh (maximum) per financial year. Contributions must come from your NRE or NRO accounts.
• Tenure Restrictions: Your PPF account matures after exactly 15 years from the end of the financial year when you opened it. Unlike residents, NRIs cannot extend the account beyond this period—no five-year block extensions are permitted.
• Compliance Requirements: You must inform your bank or post office within one month of becoming an NRI. This notification ensures you remain compliant with regulations.
• Account Status: The account operates on a non-repatriation basis, meaning funds cannot be directly transferred overseas from the PPF account.

How Do the Withdrawal Procedures and Repatriation Work?

All withdrawals, whether on maturity or pre-mature, go to your NRO account, and specific repatriation rules apply for sending money overseas.

• Maturity Withdrawals: At the end of 15 years, you must withdraw the entire amount and close your PPF account. The full maturity proceeds get credited to your Non-Resident Ordinary (NRO) account automatically.
• Repatriation Process: Once the money reaches your NRO account, you can repatriate up to USD 1 million per financial year under current RBI guidelines. This repatriation follows the standard NRO account rules and requires proper documentation.
• Fund Transfer Timeline: The maturity amount typically gets credited to your NRO account within 7-10 working days after you submit the closure application. From there, overseas transfers follow normal NRO repatriation timelines.
• Tax Implications: The maturity amount remains tax-free in India. However, check your resident country's tax rules, as some nations may tax this income when you repatriate the funds.
• Documentation for Repatriation: You’ll need a 15CA/CB certificate along with proof of source of funds to repatriate the proceeds from the PPF account.

What are the Premature Withdrawal Options?

NRIs have the same partial withdrawal rights as residents, but with important restrictions on repatriation. You can also close your account early under specific circumstances, though penalties apply.

• Partial Withdrawals: You can make partial withdrawals from the 6th financial year onwards. The maximum withdrawal is 50% of the balance at the end of the 4th preceding year or the previous year, whichever is lower. Only one withdrawal per financial year is permitted.
• Premature Closure: You can close your PPF account completely after 5 years, but this comes with a 1% reduction in the interest rate earned. Valid reasons include higher education (for self or dependent), serious illness, or other specified financial emergencies as per PPF Scheme rules.

What Are the Best Alternative Investment Options for NRIs?

Given the restrictions on PPF accounts for NRIs, exploring other investment avenues can help you maintain your India investment portfolio. These alternatives often offer better flexibility and potentially higher returns than PPF.

• Mutual Funds: Equity and debt mutual funds provide diversification and potentially higher returns. SIP options let you invest regularly, and long-term capital gains enjoy favourable tax treatment.
• Direct Equity: Invest in Indian stocks through the Portfolio Investment Scheme (PIS) route. This gives you direct exposure to India's growth story with proper regulatory compliance.
• Fixed Deposits: NRE and FCNR deposits offer guaranteed returns, and the interest earned is tax-free in India.

To know more, read all about NRI investments here.

Conclusion

If you already have a PPF account, contribute until maturity, if desired, but plan for compulsory closure at 15 years. Your money will go to your NRO account, from where you can repatriate up to USD 1 million annually.

As extensions are not permitted for NRIs, given the restrictions on PPF accounts, exploring alternative investment options can help diversify your India portfolio and potentially offer better returns with more flexibility.

For personalised guidance on managing your PPF account or exploring alternative investments, Kotak's NRI specialists are available to help you make informed decisions that align with your financial goals.