On 23 February 2018, the DEA released an official memorandum dismissing the earlier notification regarding NRI Public Provident Fund account. Previously, on 3 October 2017, it was notified that if a resident possesses an existing PPF account, it should be deemed closed on the day the resident acquires the non-resident status.
The February 2018 memo offers a temporary relief to NRI’s. The memo keeps its earlier notification in abeyance. Now if you have already invested in a PPF, you are able to continue with the same until any further notice.
It is a known fact that an NRI cannot invest in PPF. However, if you have already invested in a PPF, and subsequently changed to the NRI status, your account can still run until its maturity. The PPF is a 15-years long scheme and can be extended by 5-years blocks, indefinitely. However, for you, an extension is out of question unless you get the resident status back before the 15-years long maturity period.
Let’s get back to the 2017 notification wherein the Government of India deemed the PPF and NSC closed with effect from the day a resident turns NRI. However, the interesting part is that you would keep earning the rate of interest as per the post office savings account. Quite strangely, the new memorandum did not provide any update on NSC.
The 2018 Finance Bill has the provision to revoke The Public Provident Fund Act, 1968. As per this bill, all small savings schemes, as well as PPF, will get coverage under the Government Savings Banks Act, 1873. However, as an individual investor you do not need to be apprehensive. The finance minister has specified that existing benefit being offered to the depositors will not be withdrawn. However, the Government wants to make certain amendments to the PPF, one of which is to sanction the closure of premature accounts in case of crises such as higher education and medical emergencies.
The government sets the rate of return on PPF quarterly. It is based on the yield of government securities. Despite the reduction in interest rates, PPF remains a popular choice among investors. The prime reasons behind this popularity are the sovereign guarantee of the scheme and tax-free returns. What you invest in PPF qualifies for deduction under the Income Tax Act, 1961, Section 80C. The interest earned is also tax exempt under the IT Act, Section 10.