Moving abroad does not automatically mean you have to shut your Public Provident Fund (PPF) account before maturity. However, the rules governing the account change once your residential status becomes Non-Resident Indian (NRI) under the Foreign Exchange Management Act (FEMA).
As per the current rules, NRIs cannot open a new PPF account. However, if the account was opened while the individual was a resident Indian, it can continue till maturity. Understanding these regulations is important to avoid penalties, compliance issues, or loss of benefits. Here’s a detailed explanation of how your PPF account will function after your residential status changes.
How to keep your PPF account active?
Like resident account holders, NRIs are also required to maintain a minimum deposit of ₹500 per financial year to keep their account active during its original 15-year tenure. If this minimum contribution is not made in a financial year, the account may become inactive and require reactivation through prescribed procedures and penalties.
NRIs who opened their PPF account while they were resident Indians are allowed to continue contributing to their existing PPF account during this period, but they cannot extend the tenure beyond 15 years.
Resident Indians can extend their contributions to PPF in blocks of five years, as many times as they want. This can be done with or without fresh contributions. The PPF currently offers an interest rate of 7.1% per annum, which is revised on a quarterly basis and compounded annually.
How are the proceeds handled after maturity?
Once the PPF account matures, the accumulated corpus must be credited to the individual’s Non-Resident Ordinary (NRO) account. The PPF balance is non-repatriable, which means it cannot be directly transferred abroad.
However, funds in an NRO account can be remitted overseas up to $1 million (around ₹8.3 crore) per financial year, after paying applicable taxes, according to guidelines set by the (RBI).
Once an individual becomes an NRI, they are required to inform their bank or financial institution about the change in residential status, as the PPF proceeds will be transferred to this account upon maturity. The bank will then convert the existing savings account into an NRO account, as required by the RBI.
This ensures that income earned in India, such as rent, dividends, pension, or maturity proceeds from investments, is managed in compliance with foreign exchange regulations prescribed under FEMA and RBI guidelines.
Tax benefits and deposit limits
A depositor can invest a maximum amount of ₹1.5 lakh in PPF every financial year, and the same rule applies to NRIs as well.
The PPF enjoys one of the most favourable tax treatments among investment options in India, as it falls under the (Exempt-Exempt-Exempt) category. This means that contributions made to a PPF account are eligible for tax deduction under Section 80C of the Income Tax Act, up to ₹1.5 lakh in a financial year.
Additionally, the interest earned on investments is completely tax-free, making it an attractive option for long-term savers looking to maximise post-tax returns. Apart from that, the maturity proceeds withdrawn from a PPF account are also entirely exempt from tax, ensuring investors receive the full benefit of their accumulated corpus without any deductions.