Update on PPF account for NRIs – You can continue with PPF account now

The Indian government recently announced that Public Provident Fund (PPF) accounts had to be closed when a person became a Non Resident Indian (NRI). 

A few months ago in October, the government announced that if a resident, who opened an account under this scheme, and 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.

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On February 23, 2018, the government’s Department of Economic Affairs (DEA)  released an office memo  keeping its earlier notification in abeyance (or temporarily dismissed). The earlier notification was regarding the NRI’s PPF account released on October 2, 2017. According to the recent memo

Subject: Public Provident Fund (PPF) accounts held by Non Resident-regarding.

The undersigned is directed to refer to this Department’s notification GSR No.
1237(E) dated 03.10.2017 regarding amendment in PPF Scheme, 1968. As per the said
notification, 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.

2. It has now been decided to keep the said notification in abeyance till the further
order in this regard.

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PPF accounts to be closed, interest lowered to 4 per cent if you become an NRI

Non Resident Indians are continually looking for investment opportunities in India. A few weeks ago, we blogged about “NRIs for real estate investment in India – Know the simple Rules” The Government of Indian recently announced new rules under which select small savings schemes like Public Provident Fund (PPF) and National Saving Certificates (NSC) will not earn you the same rate if you become non-resident Indians (NRI).

A summary of changes to rules and what it means to NRIs:

  • NRIs will no longer be permitted invest in small savings schemes like NSC and PPF. In the past they were allowed to retain their PPF account if they had opened it before becoming an NRI.
  • PPF and NSC currently fetch an interest rate higher than bank savings rates. Some of it is subsidized by the Government of India. (Current rate of PPF is 7.8 per cent while Post Office savings account get 4 %)
  • PPF accounts would be deemed to be closed prior to maturity in case the holder becomes a non-resident Indian (NRI). The investor will be then paid interest at the rate applicable to Post Office savings accounts till the date the PPF account is closed.

The Indian government notification on PPF dated October 3 states,

“Provided that 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 and interest with effect from that date shall be paid at the rate applicable to the Post Office Saving Account up to the last day of the month preceding the month in which the account is actually closed.”

The finance ministry notification adds:

“Provided that if a resident Indian having purchased a certificate, subsequently becomes Non-Resident during the currency of the maturity period, the certificate shall be encashed or deemed to be encashed on the day he becomes a non-Resident, and interest shall be paid at the rate applicable to the Post Office Savings Account, from time to time, from such day and up to the last day of the month preceding the month in which it is actually encashed.”

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