Solving an NRI’s Dilemma: Can NRIs Invest in PPF in India?

Investing in India has become an attractive option for non-resident Indians (NRIs) over the years. With India being one of the fastest-growing economies globally, NRIs are keen to explore investment opportunities in the country and participate in its growth story.

Additionally, the favourable exchange rate and the availability of multiple investment options have further fueled their interest in investing in India. One such investment option that has gained popularity among NRIs is the Public Provident Fund (PPF) account.

A PPF account offers a secure and long-term investment opportunity with attractive interest rates and tax benefits. However, as an NRI, it is essential to understand the rules and regulations related to opening and operating a PPF account.

In this article, we will cover the rules for PPF accounts for NRIs and highlight the eligibility criteria, investment limits, and other essential aspects to help you make an informed investment decision.

NRI and PPF Account

Public Provident Fund (PPF) is a financial instrument that helps individuals mobilise savings by providing an investment plan with considerable returns combined with income tax benefits. This is a government programme that needs a minimum deposit of INR 500 and a maximum deposit of INR 1,50,000 per year. Usually, a PPF has a tenure of 15 years, during which you would need to make an investment every year. Towards the maturity date, you would be able to create a corpus for your long-term financial objectives.

It is, however, important to note that this investment facility is only available for Indians residing in the country. Non-resident Indians or NRIs are not allowed to open a PPF account in India. However, they can make new investments in their current PPF account which they opened when they were Indian citizens. Even when they are investing in the current PFF, they need to make contributions on a non-repatriable basis till the PPF account matures. 

PPF Deposit Rules for NRIs

As per the recent PPF rules for NRIs introduced in 2018, NRIs cannot open a PPF account in India. However, if they already opened an account when they were an Indian resident, they can continue making investments in the account even after the residential status changes.

When it is said that the contributions need to be made on non-repatriation grounds it means that any transfer of the PPF account, be it interest or principal, to the country of residence, is not allowed. The contribution to these PPF accounts for NRIs is allowed only up to the date of maturity. Once the PPF for NRI reaches its maturity, only then can an NRI repatriate the amount.

Some other things to remember with respect to NRI PPF accounts are as follows:

• An NRI can contribute to their NRI PPF account only through a Non-Residential External (or NRE), Non-Resident Ordinary (or NRO), or Foreign Currency (Non-Resident) (or FCNR) account. 
• Like any Indian resident, an NRI can partially withdraw an amount from the PPF account. However, this amount cannot be repatriated abroad to the country of residence - the proceeds can be repatriated only via an NRO account. This repatriation is permitted by the Reserve Bank of India (RBI) under the Liberalised Remittance Scheme (LRS).

Understanding the PPF Extension Rules for NRIs

Usually, Indian residents have the flexibility to extend the PPF deposit by 5 years post its maturity date. So once the PPF account matures after the standard tenure of 15 years, you can extend the maturity period by 5 years as an Indian resident. However, it is mandatory for NRIs to close their account after the maturity period ends, as it cannot be extended at all.

How to Withdraw PPF for NRIs?

To withdraw or close the NRI PPF account, an NRI needs to visit the bank branch where they have opened the account. At the branch, they would need to present a duly filled-in PPF withdrawal form, passbook, cancelled cheque, and photo ID proof. The corpus earned over the years will be transferred to their Non-resident Ordinary (NRO) account.

Here are the steps to be followed to close an NRI PPF account if the concerned NRI cannot come to India and needs to send a representative to the branch -

• Download the PPF withdrawal form and promptly fill it in.
• Affix the relevant ID proof, cancelled cheque of your NRO account, and address proof.
• Write an authorisation letter notifying that a representative will visit the branch to submit the withdrawal form.
• Provide all the necessary documents to the representative in India. 
• The representative will visit the bank, get the documents attested by the bank manager, and submit the same at the bank’s branch.
• After the bank processes the application, the accrued funds will be transferred to the NRO account.

Listed below are the special rules for the premature closure of PPF Accounts for NRIs:

• Premature withdrawals from the NRI PPF account can be done only after operating the account for 7 years.
• The withdrawal is possible only if an NRI needs to pay for their child’s higher education or emergencies like a life-threatening disease. 
• For premature withdrawals from the NRI PPF account, a penalty will be applied to the interest. This is usually a 1% interest rate subtraction from the time the account was opened. 
• The withdrawals made are credited to the NRO account. The partial withdrawals, however, cannot be repatriated. 

Alternatives to PPF Account for NRI

Discussed below are some alternatives to NRI PPF accounts in India -

• Fixed Deposit - As an NRI, you have the option to open a fixed deposit (FD) in India with your NRE, FCNR, or NRO account. With an FD, you can earn interest between 6% and 7% on your balances maintained. 
• Direct Equity - As an NRI, you can invest in the stock market if you have an NRE or an NRO account, a trading account with an authorised Securities and Exchange Board of India (SEBI) stockbroker, and a DEMAT account. It is important to know that your stakes in an Indian company cannot be more than 10% of the paid-up capital. 
• Mutual Fund - The Association of Mutual Funds of India requires an NRI to have an NRE or an NRO account for investing in Indian mutual funds. The investment needs to be made in INR. NRIs should also go through the rules for investing in mutual funds in India as per Foreign Account Tax Compliance Act regulations. 
• National Pension Schemes (NPS) - As an NRI, you should be between the ages of 18 and 60 years to open an NPS account. This is a government-backed pension programme that is easy to access and affordable. 
• Real Estate - As an NRI, you can easily invest in Indian residential properties (in INR), although you won’t be allowed to invest in agricultural lands, plantations, and farmhouses. Another important thing to know is that you can inherit agricultural land or farmhouses only as gifts.

To Conclude

As an NRI, you cannot open a PPF account in India. You can, however, continue to contribute to a PPF account that you opened when you were an Indian resident. It is important to note that these contributions are non-repatriable. Furthermore, unlike Indian residents, you cannot extend the duration by 5 years once your PPF account for NRI matures.

While you cannot open a new PPF account for NRIs, you can certainly explore alternate investment options such as fixed deposits, direct equity, mutual funds, real estate, and national pension schemes.