PPF and NSC are the most popular long-term saving instruments in India. The amount invested in these instruments is eligible for deduction up to Rs 150,000 under section 80C along with other eligible investments.
The Govt. of India has recently revised investment rules relating to the investments by the Non-Resident Indians (NRIs) in the select Small Savings Schemes – PPF (Public Provident Fund) and NSC (National Savings Certificates).
As per the new amendment done to PPF Act, “account holders of the Public Provident Fund (PPF) account shall be deemed to be closed the day their residential status changes to NRI.”
Latest update (23-Feb-2018) : The Govt’s notification dated 3-Oct-2017, regarding closure of PPF accounts held by NRI has now been put on hold. The Govt has issued a latest notification on this as below. So, NRIs who currently hold PPF accounts can continue their investments in PPF accounts until further notice (if any). As per the new notification it has been simply been put on hold.
A separate notification has also been issued in respect of the National Savings Certificate (NSC), which states that an NSC is deemed to be encashed on the day when holder becomes an NRI.
Who is considered as an NRI? – A person is considered resident in India, if he is in the country for 182 days (or) 60 days in a year and 365 days in each of the preceding four years as per Income Tax Act. When a person doesn’t satisfy both these conditions, he/she is termed as NRI.
Below is the Flow chart to know if you are an NRI or Resident. (Kindly click on the image to download the flowchart.)
(Related Article : ‘How to know your Residential Status? Online Residential Status Calculator‘)
If your Residential status is NRI and you have made investments in PPF and/or NSCs then you need to be aware of the below revised rules.
NRI investments in PPF
Below circular clearly states that this new amendment is not applicable retrospectively. (My sincere thanks to one of my blog readers, Mr Kesavan, for emailing me this circular.)
NRI investments in NSCs
In case, you are in a foreign country and would like to close your PPF account now, below is the procedure to withdraw funds from PPF account ;
The above latest amendments will surely impact a large number of NRIs who have made investments in PPF/NSCs. The amendment indicates that such accounts may need to be closed / encashed. Once you return to India and become Resident Indians, you can open a fresh PPF account. (As of now, there is no clarity on whether these deemed to be closed accounts can be revived or not.)
So, what should NRI’s who have PPF and NSC accounts do now with their accumulated corpus? – I believe that NRIs should withdraw their funds in PFF/NSCs immediately (or during their next visit to India) and invest in other suitable/better investment avenues. As an NRI, before you consider any other investment alternative, suggest you to kindly know the current tax rules that are prevailing both in India and foreign country (especially rules related to ‘repatriation’).
Continue reading :
(Post published on : 31-October-2017)
This post was last modified on July 11, 2023 9:43 pm
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I am extremely thankful to you for the expert advice which is very prompt too.
I have accessed a letter of GOI No. 5/23-1/2017/35 dt.8-1-2018 from the. Office of the Director, National Savings Institute, New Delhi-2 addresseed to Govt Business Dept., , all Nationalised banks, ICICI, axis ,HDFC, says
" The reduced rate of interest for nri ppf shall be applicable from the date of effect I.e. 3/10/2017"
This will end the confusion re retrospective nature of the notification.
With great regards
R Kesavan
Thanks for sharing the letter details of 8th Jan 2018 letter by the Directorate National Savings Institute, MOF addressed to banks. My bank refuses to have recieved this letter. Can you share this complete letter please so that it can help many readers like me,
Thanks & Regards,
Dear Mr Khosla,
I have uploaded the complete letter in the article.
You may click here to download the same ..
Thank you so much for sharing the circular, much appreciated!
.Dear Sri Srikanth Reddy,
I am posting a problem being faced by a friend in respect of PPF & NRI and seeking a solution through your very helpful blogs.
1. He Joined IT company in India in 2003 . Opened a bank account for getting salary credited and opened a PPF account in post office in Oct 2003.
2. Has been filing income tax returns in India as per rules when employed in India.
3. In 2007 joined an American company & and is in USA as NRI since March /April 2007
4. When income in India became non taxable , has not been filing I T returns in India.
has no assets in India. only has a term deposit (FD) for ₹ 4 lakhs in another bank . In this bank is having a joint SB account ( as second name joint with father)
5. has an Indian PAN card. has been keeping the ppf account alive by depositing some amount every year.
6. The 15 th and final installment in PPF has been paid in May 2017. No more deposit is payable and the maturity value is withdrawable any time after April 2019.
7. The NRI status has not been so far mentioned in the ppf or bank account. The interest accruing in PPF account has also not been shown in US income statements.
8. has no NRO account in India.Now has become citizen of USA in 2017
9. The total credit balance in the PPF account in post office at the end of FY 2016 a 2017 is
₹ 12 lakhs approximately.
10. has also been issued a AADHAR card during visit to India in 2015.This has not been linked to PAN card , PPF account and bank account.
Now planning to visit India sometime in 2018. In view of details provided above
Q1. Is it advisable to visit India after April 2019 , close the PPF account in post office using the AADHAR and PAN card , deposit the maturity proceeds in the bank where earlier salary was being credited, without referring to US citizen status
OR
Declare the US citizen status now , foreclose the PPF account in post office during any visit in 2018 itself, using the US passport and US residential proof, get the money and deposit in a NRO account which can be opened at that time.
Which route will be free of hassles ?
Q2
Once the amount becomes available
1. is it to be reflected in US income statement & how ?
2. What is the procedure involved ?
With best regards
R Kesavan
.
Dear Kesavan,
As soon as your friend became an NRI, he should have updated his residential status with at least at Bank. Maintaining regular Indian Savings account is not permissible.
So, I believe that this is the right and advisable option - "Declare the US citizen status now , foreclose the PPF account in post office during any visit in 2018 itself, using the US passport and US residential proof, get the money and deposit in a NRO account which can be opened at that time."
Also, Aadhar is not for NRIs and there is no need to link it with PAN.
He can get the credit of withdrawal proceeds of PPF account into the NRO account. And balance in the NRO account can be repatriated abroad up to a limit of USD 1 million per financial year. Of course, he would need to follow certain procedure for such repatriation.
Hi,
Thanks Sreekanth for your blog.
I have opened ppf account in 2012 . As NRI now planning to close account to comply with new rules. Believe I need to have NRO account for money be transferred into. Also has anyone successfully closed PPF at SBI. I will be traveling this month end to India, it will help me if any one has done it.
Thanks,
Hemachandra
Dear Hemachandra,
I have recently received an email from one of my blog readers (as below) who has successfully closed NRI - PPF ac.
He has received regular PPF interest up to Sep 2017 and after that interest @ rate of PO savings ac.
Thank Sreekanth for your update. In that case I will approach SBI to transfer my savings account as NRO account first and then close PPF. Will update you if I am successful
Sir,
As per the sub-para 2 of para-2 of above Notification, the provisions of the substituted Proviso, is applicable wef the date of its publication in the Gazett. Contrary to this view, the State Bank of India is intending to apply this Proviso from the date of becoming NRI, which may even be earlier to the date of Notification (03-10-2017). The SBI is considering cut off date as early as of 2001.
Say, if one has become NRI on 1st April 2005, than in view of the Bank his PPF a/c would be treated as closed on 01-04-2005 and from this date interest of Saving Account, viz., 3.5 to 4% would only be allowed.
It is, therefore, requested to kindly guide me, so that SBI closes my PPF a/c from prospective date i.e. from the date of Notification (03-10-2017) or from the date of its publication in Gazett (30-10-2017) and not from retrospective date.
An early response is solicited.
Thanking you.
Narendra
Dear Narendra,
I have been advised by many CAs that this notification is not applied retrospectively.
You may request the SBI for any source/circular confirming that this has to be applied retrospectively.
I have deposited 1,50,000 in my PPF account in April 2017. I am NRI from 2009 and PPF account is opened in 1988. Can I claim benefit of 80C For income tax exemption while assessing my income during the year 2017-18? I believe I donot have to close the PPF account per se if I wish to get 4 per cent interest, though it is not a logical thing to do. The notification is about lowering of interest rate by deemed closure of the account but for the year 2017-18, I should be able to get tax exemption for contribution already made before October 2017. Please advise. Thanks
Dear Surendra,
I beileve that your understanding is correct.
Can claim tax exemption for FY 2017-18. Also, if you do not close the account, you get nominal interest rate (and the ac is deemed to be closed only).
Dear Sri Srikanth a reddy,
The ppf account opened as Indian resident will earn sb account interest when one becomes NRI later as per 30"Oct 2017 GOI notification. Pl clarify this retrospective or prospective? There is no clarity on the notification. Nobody seem to know about it.
Dear Kesavan,
As per the notification, it says the new rules are applicable w.e.f the date of publication in official Gazette ie 30-10-2017.
I believe that this is not applicable retrospectively.
Hi.
My query no. 1. PPF account Where holder became nri earlier than 2017, now ha s his account deemed closed on oct 17. His balance and interests he had earned at higher rates say 12,8 etc. Should not be disturbeD, in othe r words the subject circular can not be retro spective. Please enlarge on this and publish when clarity comes to authorities.
My second query,
Mr.A Has become nri and has a ppf ac. He remains quiet in 2017. In 2018-19 and 2019-20 he becomes Resident . Will it be prudent for him to be quiet and not close the ac in 2017.
Becz I have not seen any circular insisting tha one has to periodically inform the r and nr status to account maintaining bank/Po.
Lcr
Dear Raghuram,
1 - I too believe that this notification is not retrospective in nature.
2 - Legally, one has to inform the respective banks/PO/Financial institutions about the change in Residential status (if any).
prashant.goyal@nic.in is the email ID of responsible guy in FinMin. All write to him.
Hello, has any NRI been successful in getting their PPF account closed? This is such an unfair step on part of GOI! For many NRIs who are banking on PPF as a major retirement saving, the decision to close PPF accounts is a major blow. Why should we be penalized?
The banks don't seem to have a clue on the steps forward. Request NRIs to post their experiences with banks regarding closure of PPF. Also about the rate of interest. What are the tax implications? Not everyone can come to India right away just to close the PPF.
Dear Sarita..Valid points!
The govt should order the PPF service providers to provide PPF a/c closing option through online route for all the NRIs.
They should have provided the infrastructure first and then could have issue this notification , or they could have given some time-line to close the PPF accounts.
Dear Sreekanthji,
Thank you for raising this important matter in your blog. Kindly post updates , if any. Have the banks, in particular SBI, received any notifications on how to move forward with PPF accounts of NRIs? I notice that the NRI pages of the Axis Bank site still mentions that NRIs can continue with their PPF accounts! They have not updated their information.
Has anyone got their accounts closed? Has anyone heard back from Prashant Goyal , the Ministry of Finance official who has issued the notification in the first place?
Thanks.
Today, my mother visited State Bank of India (goregaon west, Mumbai) and she was told that they have not received any such instructions (though they have read this in newspaper) - as such they cannot close the PPF account and give the money. They told to check next month or come when PPF account achieves matures.
Of course above is not true - it is just wierd dictatorship - many NRI lost money during demonitization as they could not make visit and could not deposit their cash. Now, banks will close PPF account after several months once Government etc notifies them and they will charge lower interest. All such things should done with some planning and notice - like after 3 months NRIs can close PPF and withdraw cash and after 6 months if money is still left they will get lower interest and these are the documents they are expected to give to close the account. Very pathetic.
Has any clarification / Notification issued by the Govt whether the new ppf rule for nri's will be applied retrospectively or will it be prospective ?
Dear Krish,
As per my interpretation and discussions with CA friends, this notification is not retrospective in nature.
Dear Srikanth , Thank you very much . I had opened Ppf in May 2003 and became NRI in 2004. Now as per the notification , should I go ahead and close the account or wait till May 2018 when the ppf actually will get matured after 15 years ? Request your advice .
Regards
Krish .
Dear Krish,
As of now, most of the service providers (Banks/Post office) have no clue about the pre-mature closing formalities based on this notification.
So, you may wait till May and get the maturity proceeds.
But, do note that the regular PPF interest is payable only till Sep 2017.
Totally agree with you dear Dharmesh ..