This is not a good news for NRI (non-residents) who have invested in PPF accounts.
As per a recent Government notification, PPF accounts have to be closed when the account holder becomes an NRI (non-resident Indian).
As I understand, the definition of NRI (person outside India) as per FEMA will be considered (and not as per Income Tax Act). So, if you are going abroad for employment, you are NRI (as per FEMA) for day 1 and the PPF account has to be closed right away.
Here is the excerpt from the notification (NOTIFICATION NO. GSR 1237(E) [F.NO.1/10/2016-NS.II) dated October 3, 2017.
IMPORTANT: The aforesaid notification has been put on hold vide Government Notification dated February 23, 2018. Read more this development and the implications in this post dated February 24, 2018.
What were the earlier PPF rules for NRI?
NRIs could not open PPF accounts. However, the PPF accounts opened before becoming NRIs could be continued till maturity.
NRIs were not allowed to extend their PPF accounts (with or without contribution).
Read: All you need to know about PPF Account
What are the new rules?
As I understand, now the PPF account has to be closed straight away if you become an NRI. It can’t even be continued till maturity.
What are the implications of this move?
Clearly, NRIs can’t invest in PPF account.
The language is quite clear.
The account shall be deemed to be closed from the day he becomes a non-resident and interest with effect from that date shall be paid at the rate applicable to the Post Office Saving Account up to the last day of the month preceding the month in which the account is actually closed.
Even if you don’t close the account on becoming NRI, it will be deemed closed and you will earn a rate of interest that is equal to that of Post Office Savings Bank account from that day.
Does this notification apply retrospectively?
For those who become NRI after October 3, 2017, their PPF accounts have to be closed straight away or will be deemed closed from the date they become NRIs. Such NRIs will earn only savings account interest on their PPF balances from the date they become NRI.
What about those who became NRIs earlier and continue to hold PPF accounts?
I am sure there are many NRIs who had opened PPF accounts before becoming NRIs and those accounts are yet to mature.
In my opinion, there shouldn’t be any impact for the period before October 3, 2017. You will get the full interest for the period prior to October 3, 2017.
For the period after October 3, 2017, you may get only savings account interest. I am not sure though. Quite possible the notification applies to only those account holders who become non-resident in the future.
What should you do?
To be on the safer side, if you are an NRI and have a PPF account, do not make any further contributions to your PPF account.
In my opinion, it will be a good option to close the PPF accounts on your next visit to India. If your PPF account can be closed online (don’t think so), you can explore that option too.
Be prepared for operational hassles
Bank officials may not be aware of these new rules.
Therefore, when you approach them for the closure of PPF accounts before completion of 15 years or completion of extension period just because you have become a non-resident, be prepared for confused looks.
It is better to get the clarification from the bank over the e-mail first and subsequently head to the bank branch with the printout of the e-mail for the closure of the PPF account.
And what about the interest acquired on the account before a person becomes an NRI ?? Will it still be 100% income tax exempted ??
Hi Aswath,
As I understand, there is no change on the tax front.
Any proceeds from PPF remain tax exempt as before.
The interest before turning NRI too continues to be tax-exempt.
Hope this clarifies.
Sir,
What about the status of person(Eg Spouse) under whom PPF account was opened and residing with her her husband(on employment abroad)?
If the spouse is person outside India (NRI) as per FEMA, the same rules apply for her.
However, as I understand, she may not be NRI from day 1 (unlike her husband).
Hi Deepesh, What if someone is visiting children for 8-10 months and will be NRI(> 182 days abroad) only for 1 financial year 2017-18 and back to India as a resident from 2018-19 onwards?
Hi Bharat,
Residential status as per FEMA (and not income tax act) shall be considered.
FEMA is subjective and you should be ok since you will be in India permanently after visiting your children.
Suggest you confirm this with a competent Charterted Accountant too.
Suggest you go through the example in the following post.
https://www.personalfinanceplan.in/opinion/who-is-nri-as-per-fema-and-income-tax-act/
Hi Deepesh, Thanks
I think your IMO non-applicability of this from retrospective date is more of common-sense thinking, while I wish you’re right but Govt’s attitude and language of this notification is clear that impact will be from the DATE one turns NRI, including past date , unless specifically and otherwise clarified. Expecting common-sense from Babus is too much asking.
Do you have any basis to think that it will be after 03Oct2017 only?
Bytheway, I’m the affected one if it is from back date; I wish you’re right :), as we say Apke munh me Ghee Shakkar :):)
Hi Akhil,
There are two aspects from the perspective of retrospective applicability.
1. whether the balance before October 3rd will earn 4%? This is unlikely to apply. Will only open Pandora’s for the government. Wouldn’t hold a day in the court.
2. whether even those who became NRIs before October 3 will have to close their PPF account. This is where I believe the notification goes against the investors. However, since I have not been able to grasp the rationale behind this notification, quite possible I am wrong and the Govt. comes out with a notification. In any case, PPF accounts were to be closed after maturity. Perhaps, this is to stop people from gaming the system. Most NRIs continue to hold resident accounts.
If we argue on language: the rule comes into effect from the date of notification. It does not say NRIs have to close. It says those who become NRIs during currency of the maturity have to close. If you combine date of enforcement and conversion to NRI, those who became NRIs earlier can avoid.
Know I am stretching it too far but any draft of law leaves out a few loopholes. Language cannot always capture the intent.
That’s why the intention behind the notification needs to be understood. I don’t know that yet. Seems quite ill-advised.
I will still wait for a couple of months for any clarification.
The bigger problem is for those who become NRIs for only a few months or years but still will have to close PPF account.
Hi Deepesh,
Thanks for detailed one, backed with rationale. It’s indeed soothing to ‘hope’ they (GoI) ‘honor’ their promises and don’t do any retrospective harakiri. (I wonder they’re aware of Vodafone retrospective case and it’s bad PR)
we have to wait, as even banks at operations level are not quite sure about it.
As far motive, it’s not a bad idea to ban PPF for NRIs,even I support it; If NRIs are not paying Tax-they shouldn’t enjoy tax beneficiary instruments : fair point!
However, majority of such PPF/NSC users are Gulf NRIs, majority of them are not in well to do situations- mainly blue-collar workers,These workers send their major share of earnings (unlike US/UK NRIs) to India, and not necessarily exposed to other investment instruments like share/bond market etc. Such small saving schemes are great help to these workers to save for rainy days.
These are the folks who make remittance to India highest in world., swelling precious $$ account for Mr Jeblootly and Mr NRIend Modi :):)
Appreciate if you update this space if/when more info is available.
Thanks
Cheers
Hi Akhil,
Please go through the following post.
https://www.personalfinanceplan.in/nri-corner/nris-ppf-account-continue/
The earlier notification has been put on hold.
Par 1(2) of the notification clearly states that the scheme would come into operation only from the date of issue of notification i.e. 3rd October, 2017. In other words, only the PPF accounts opened by residents, later to this date, will be closed, if they become NRI subsequently, from the date of change. The notification should not affect the PPF accounts opened earlier, as otherwise no rules will have sanctity. In other words one cannot do anything, if rules are changed retrospectively every time. Moreover it is seen that this notification has now been kept in abeyance by letter dated 23rd february, 2018., .
Hi Natarajan,
Complete agree. However, please go through some of the comments and you will realize that banks don’t agree with our opinion.
Btw, the notification has been put on hold.
Please go through the following post.
https://www.personalfinanceplan.in/nri-corner/nris-ppf-account-continue/
Hi Deepish,
Please clarify that for NRI interest before 3rd October will be as per the rates existing at that time. If NRI closes the account after 3rd October then 4 % interest will be applicable till account closure date. The Govt will not recalculate interest rate to 4 % if a person became NRI say for example in 2010 (2010 till 3Oct2017 period). Please advise if my understanding is correct. Thanks for your help.
Hi Sunil,
Before October 3, you will get higher rates. The notification is not retrospective in that aspect.
Moreover, such retrospective change is untenable in a court of law.
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.
Hi Dharmesh,
Can understand your frustration.
To be frank, I expected this response from bankers. They may not have received directions from above. Or they may be simply ignorant (not uncommon).
The best way is to write to bank chairman explaining your case.
Should get resolved soon.
I had approached SBI to close the PPF account, I was told they have not received the instruction. I wrote to customer care to forward my e mail to instruct Branch closing the PPF account. No reply till writing of this.
J Shah
Dear Mr. Shah,
Such problems were anticipated.
Pleas write to the Bank Chairman. That may expedite the process.
My Bank is not having any info regarding this and keeps saying you cant close it before 15 years.
What should I do?
That is a problem Aakriti.
Bank officials have no idea about this.
Suggest you write an e-mail to bank chairman.
Hi Deepesh,
Thank you so much for putting it in black and white and taking out time to answering to people’s comments. Its highly appreciated by the NRI community ! I do have one question (and please forgive my ignorance on the financial matters) – is it possible to convert the PPF account into NRO/NRE or only option is to close it? And can it be closed before typical 15 years maturity? (i opened my account in 2008 then came to USA in 2009 and now need that money to invest here in USA….is it possible to close the PPF account and take that money out?)
Kind Regards,
aseem
Hi Aseem,
Appreciate your positive feedback.
PPF account can’t be converted to NRE/NRO. Essentially, the money will be transferred to your NRO account.
NRI have to close their account irrespective of whether the account has completed 15 years.
However, the funds are non-repatriable. So, the money comes to your NRO. You will then have remit subject to restrictions under NRO account.
For residents, there is an option to close PPF account prematurely in select cases.
https://www.personalfinanceplan.in/opinion/now-you-can-close-your-ppf-account-before-15-years/
Thank you so much Deepesh ! Happy New Year !
Happy new year to you too, Aseem!!!
Hi Deepesh
I wish people in Govt and in Banks were atleast half as informative, as analytical and as humane as you have been. Kudos to you
Thanks Pawan!!!
Hi thank you for the detailed explanations.alas I just saw a directive sent to sbi managers to retrospectively close and give interest at 4 percent even if say for example someone turned NRi in 2015
Hi Amit,
That is new to me.
Clearly unfair if the investor gets 4% from 2015.
Wouldn’t stand a day in a court of law.
Can you please forward the directive to the support id?
If you are one of the aggrieved investors, suggest you write to the bank chairman.
Hi Amit,
Please go through the following post.
https://www.personalfinanceplan.in/nri-corner/nris-ppf-account-continue/
The earlier notification has been put on hold.
May be useful for you.
HI DEEPESH.
I AM WRITTING ON BEHALF OF MY SON WHO IS NRI FROM AROUND 2006. I HAVE READ THE ISSUES ADDRESSED TO YOU BY MANY READERS. THE BIGGEST ISSUE IS THE RATE OF INTEREST ON BALANCE IN PPF ACCOUNT BETWEEN THE DATE OF BECOMING NRI AND 3rd OCTOBER, 2017 THOUGH THE GAZETTE NOTIFICATION NO. G.S.R 1237 (E ) DATED 3rd OCTOBER SAYS THIS APPLICABLE FROM NOTIFICATION PUBLICATION DATE IE 3rd OCTOBER, 2017. . I THINK THERE ARE LARGE NO. OF PEOPLE WHO ARE AFFECTED BECAUSE OF THIS ISSUE. IF BANK ( BRANCHES ) ARE ADAMENT IN MAKING THIS APPLICABLE FROM RETROSPECTIVE DATE, IT IS DIFFICULT FOR EACH INDIVIDUAL TO FIGHT WITH BIG ORGANIZATIONS LIKE BANKS, GOV. ETC. IN SUCH A SITUATION ALL AFFECTED INDIVIDUALS MAKE A FORUM AND TAKE UP THE ISSUE(S) WITH BANKS OR GOVERNMENT OR FIGHT IT OUT IN COURT. ALL THE AFFECTED INDIVIDUALS WHO ARE READING THIS MAY THINK ABOUT IT AND EXPRESS THEIR VIEWS. IF FIND THIS PROPOSAL ACCEPTABLE , IN THAT CASE MR. DEEPESHE, YOU MAY HELP US IN ORGANIZING THIS.MODALITIES CAN BE WORKED OUT LATER.
THANKS-K.N.GUPTA.
Dear Sir,
In my opinion, the notification is not applicable retrospectively.
I believe this wouldn’t stand a day in court.
At the same time, there is no need to form a forum at this moment.
For such cases, e-mail communication is the best because everything goes on record. It is very much possible that branch officials have interpreted the direction incorrectly.
Suggest you drop an e-mail to SBI customer care and seek clarification.
At the same time, suggest you write to SBI Chairman and bring the matter to his/her attention.
Do you have a copy of the internal direction about NRI PPF account? If yes, please share.
While I appreciate the trust you have put in me, please understand I do not have the bandwidth to organize such forums/activities.
Thank you Deepesh.
K.N.Gupta
Dear Mr. Deepesh,
Myself, my wife and daughter (3 of us) have different PPF accounts in SBI since 2008. Recently, we have got Canada Permanent Residence (PR) visa and we are migrating to Canada by mid of March 2018. Can we close our PPF accounts before going to Canada? If yes, does this enough to provide CA VISA & tickets to SBI for closure? Your reply is appreciated. Regards
Hi Jyothish,
You can open Non-resident accounts before leaving India.
However, I am not sure if the bank allows to close PPF accounts similarly. In any case, this is a new development.
Suggest you mark an e-mail to the customer care.
Dear Deepesh,
I really appreciate your effort to reply for all the questions asked. Today only I came to know that NRI cannot maintain their PPF account. My father visted PPF branch and they have raised voice telling NRI cannot maintain PPF account. Is there any update on interest rate? I opened PPF account back in 2010 and became NRI in 2015. Would like to know whether I will get 7.8% interest until October 2018. I really wish there is some separate NRI PPF account. It makes me surprised as creating New PPF still works in NRI online banking!!! Thanks for ur reply in advance. Please suggest some good saving scheme.
Dear Akila,
There are operational issues that will never end. Websites are not updated. Bank staff is not aware.
You should get the higher rate until September 2017.
NRIs are not welcome in small savings schemes.
DEAR DEEPESH
what will be the scene, if i continue depositing money in my ppf a/c , even afterbecame nri
Dear Ashok,
You will earn savings account interest.
Hi Deepesh,
I’m being assigned for 1 year in Japan form Apr’18 till Mar’19.
This is an intra-company transfer.
I will definitely return to India after 1 year assignment.
I have a PPF account, should I close this account and withdraw money? Or should I not invest for this 1 year and continue investment after return?
Please support.
Hi Ankur,
In my opinion, you will be an NRI and hence must close PPF account.
However, please consult a competent Chartered Account before you decide anything.
Hi Ankur,
Please go through the following post.
https://www.personalfinanceplan.in/nri-corner/nris-ppf-account-continue/
The earlier notification has been put on hold.
May be useful for you.
I have already closed by PPF account and Bank of Baroda gave me only 4%
This means, it is not a theory anymore, rather the sorry story of extortion.
Not very surprised thought, didn’t expect much from the BJP government.
Just to add and clarify, I became NRI long below this announcement and the bank gave me 4% interest from the first day of the deposit. Off course I can’t really leave my job and fight these thieves in court. So I just had to accept it.
There was a typo in my above post. Read it like below.
Not very surprised though, didn’t expect much from the BJP government!
hi Avisekh,
This is extortion indeed if that’s the case.
Suggest you mark an e-mail to Bank of Baroda Chairman and seek clarification.
Your case is quite strong. Don’t think you need to go to courts yet.
Hi Avisekh,
The earlier notification has been put on hold.
https://www.personalfinanceplan.in/nri-corner/nris-ppf-account-continue/
I am not sure if it is useful now.
However, I believe you have great chance to get the full rate from inception.
Avisekh,
Whether you received 4% interest from date of opening PPF account or from date of NRI you became or from October 2017?