I was happily enjoying my Saturday morning while I came across an article that was posted by Melvin Joseph on Facebook. The topic that Melvin covered was about NRI PPF account and the topic surprised me a bit since it spoke on the latest notification by the Government.
The news listed the notification published by the Department of Economic Affairs from the Ministry of Finance which had issued a notice stating abeyance of NRI PPF notification.
The previous notification was released on 3rd October, 2017.
However, within four months of passing the rule, the Government has now gone ahead and revoked the rule. There can be lot of reasons why this action was taken by the government which we will discuss later in this article about NRI PPF account
First of all, let us see if a nonresident Indian can open a PPF account
Can a Non-Resident Indian (NRI) open a PPF Account?
Old Rule -According to the old rule, the answer is NO. An NRI cannot open a PPF Account. However, if a person has opened a PPF account while being the citizen of India, he can continue to invest in PPF till the end of the original term- 15 years from the start of the PPF account.
He can contribute the money to his account through NRE/NRO account also.
Before going forward, let us see what was the notification, released in 2017, all about?
NRI PPF Notification 2017
How does this NRI PPF notification 2017 impact the NRI PPF account?
What the notification meant for NRI PPF account?
The notification stated in layman terms that if a person has opened a PPF account while being the citizen of India, he/she needs to close the PPF account the day he/she becomes an NRI.
However, if NRI chooses not to close the PPF account, the rate of interest accrued on the PPF account would be reduced and will be considered at 4% per annum which is equivalent to the savings bank interest rate.
Prior to this notification, NRIs had few options available to handle their PPF account
- NRIs were never allowed to open a PPF account. But, they were allowed to maintain the account if they had opened a PPF account when they were resident of India.
- Maintaining the account meant that they were able to contribute to the PPF account through their NRI or NRO account.
- By maintaining the account, NRIs were receiving an interest equivalent to the resident Indians.(7.8% per annum)
- With this notification, all NRIs had to either close their account or if they intended to maintain their existing account will only be eligible to receive an interest rate of 4%.
Let us understand the implications of this notification with an example –
Karan is a resident Indian who maintains his PPF account from last 10 years. We have Karan’s younger brother Gopal who has been living in Australia for the past few years. His status changed to that of NRI from 1st of December 2017. In this case, Gopal will receive the similar rate of interest as Karan or any other resident Indian for his account India till 30th November 2017.
However, from 1st December’17 onwards, Gopal has 2 options:
- Either to close the PPF account; or
- To maintain the account and earn an interest rate of 4%.
PPF NRI Notification 2018 – NRI PPF Account
The latest PPF NRI notification dated 23rd February, 2018 released by Department of Economic Affairs states that –
“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.”
It has now been decided to keep the said notification in abeyance till the further order in this regard.
What does this latest news about NRI PPF Account meant for NRIs?
In simple words, this means that we are going back to the same rules which were in existence before the changes that came across in October’17 –
- NRIs cannot open new PPF account
- NRIs can maintain their PPF account and get the same interest rate as given to resident Indians.
NRI PPF Rules 2019
The new rules will apply only when an NRI has an existing PPF account already. As an NRI, you will not be able to open a new account. However, all NRIs who had closed their account between October’17 and February’18 due to lower interest rates will not be able to avail the benefits of the new rules unless they become a Resident Indian.
- PPF is a 15 years scheme.
- It can be extended beyond 15 years in blocks of 5 years any number of times.
- NRIs cannot extend the PPF account beyond 15 years.
- Minimum amount required to keep the account operational is Rs. 500
- Every year, the Government used to declare the interest rates applicable in advance. Now the interest rate is reviewed and reset every quarter.
- After 7 years , the PPF account holder is eligible for partial withdrawal of funds from their PPF account
- PPF account can also be closed before maturity (after completion of 5 years) under certain conditions
- The account holder is also eligible to avail a loan between 3rd-6th financial year since from the 7th year, there is an option of partial withdrawal.
To read the complete information regarding PPF rules, limits, and maturity.
Please refer to our previous article on: SBI PPF account rules, limits and maturity
2018 Amendment rules on NRI PPF account
What interest rate will an NRI get for the period between October’17 to February’18?
My understanding is that since the government is using the word abeyance, as an NRI you will enjoy the same interest rate as resident Indians for the period between October 2017 to Feb 2018.
What is the reason for reversal of NRI PPF Amendment Rule 2017?
NRIs have been investing lot of money towards their PPF account since it was considered as the safest heaven for investment. The interest rates were as high as 7.8% backed by the Government of India. Moreover, the chances of default were very less or almost negligible.
Most NRIs used to invest in PPF account as part of their retirement plan. This was easier since one can stay in some other country for 10-15 years and then return back and become a resident Indian again and extend their PPF account.
No other security gives you such a fixed high return with any volatility. Though you can earn much higher returns in mutual funds, or equity but that again is not fixed. The returns depend on the stock markets as they vary and may go up or go down.
Reasons the Government must have revoked the Rule
I think, the government is considering giving voting power to NRIs in the coming elections. So it is natural that they can’t take such steps which will affect many NRI investors!
NRIs who have closed their accounts after the 2017 amendments must be feeling a pinch now? To open a new PPF account, they need to be Resident Indian.
Whats your view on NRI PPF account latest notification 2019? Please share.