There are not many things I dislike more than policy flip-flops. You cannot make a decision if the Government, bureaucracy or the regulator is trigger happy. Something similar has happened to policy on NRIs holding PPF accounts.
Add to that, incompetence and non-customer-centric outlook of many bankers, the misery of an honest taxpayer and investor can only compound.
In its notification dated October 3, 2017, the Government had specified that NRIs cannot continue their PPF accounts and will have to close their PPF accounts. If such PPF accounts were not closed, the PPF accounts will earn an interest rate of a savings account. Many NRIs rushed to banks to close their PPF accounts and face many hassles. I will talk about this later.
Now, the notification dated October 3, 2017 has been put on hold. This has been notified on February 23, 2018. We will discuss later what this means.
You can read the Government notification dated February 23, 2018 here.
Let’s look at the imeline of PPF policy for NRIs.
#1 Before October 3, 2017
NRIs could not open PPF accounts. However, the PPF accounts that were opened before becoming a non-resident could be continued till maturity.
NRIs were not allowed to extend their PPF accounts.
NRIs earned the same rate of interest on PPF accounts as residents.
#2 After October 3, 2017 notification
NRIs have to close their PPF accounts. With this notification, they couldn’t even continue their accounts till maturity. Therefore, as soon as you become an NRI, you have to close your PPF account. If you (NRI) didn’t close the account, you will earn the interest of a savings bank account on your PPF balance.
In my opinion, this was a senseless move.
Adding to the misery, bank officials and policies started wreaking havoc on hapless investors.
When NRI investors turned to banks, they were first told that there is no such communication.
Here is comment dated December 7, 2017.
However, when bankers finally got their policy in line with Government notification, at least some of the banks gave 4% from the inception of the account (and not from the date of notification), which made little sense. In my opinion, such a notification can’t be retrospective. But bankers don’t care. Not everyone can put in time and effort to take the fight to the bank.
Here are a few comments.
Final nail in the coffin
You can read about the notification and many comments from upset investors in the following post. (NRIs have to close their PPF accounts)
#3 From February 23, 2018 until further notice
The notification dated October 3, 2017 that prohibited NRIs from owning PPF accounts has been put on hold.
This means we are back #1 where NRIs can continue to hold their accounts till maturity.
Though I feel it is a sane move, this notification should have come much earlier and not after almost 5 months.
However, what about the problems that many NRI investors faced? Many were perhaps even asked to visit bank branches to close PPF accounts. I am sure most of them stay abroad.
What about those investors who closed their PPF accounts because of the notification?
What about those investors who were given a meager 4% instead of the regular PPF interest rate? I believe though, such investors can get back the full interest if they fight for it.
Who will answer to them?
What should you do?
If you are an NRI holding a PPF account, there is no rush to close it now. However, in my opinion, you should not make any meaningful contributions from now on in PPF account.
The notification dated October 3, 2017 has simply been put on hold. For all you know, it may be put in place all over again after a few months.
If you are resident and believe that you will become an NRI in the near future, do not open a PPF account. If you already own one, you can’t do much about it.
Thanks for this post. What an utter confusion. And we talk about ease of doing busiess when we cant even manage A simple PPF policy.
Its in our beuracracy’s DNA to create confusion on a straight forward policy.
I have decided not to contribute anything till March 2019
You are welcome, Nandan.
Yes, this should have been handled with greater care.
Hello Deepesh,
First of all many thanks to you for the detailed blog and put all these matters in a lucid way.
I have been following your earlier and this post closely and found myself in the middle of NRI PPF ongoing changes.
I opened my PPF account in Feb’ 16 . Then i became NRI in Jan,2017 and couldn’t close the PPF account as bank employees were not aware how to do so, Therefore they suggested me to make a minimum of 500 Rs investment each year towards my ppf account. But in 2017 i had put another 1.5 L in my ppf account ( as they offer decent interest rate ) . I planned to do it for next 15 years.
1, What should i do now ? As i became the NRI before 3rd October ’17 ,Should i continue to consider PPF as an investment instrument for myself ?
2, Will i get the PPF interest rate or the flat 4% interest rate for the year 2017.
3. I also planned (before reading your post ) for my wife – who became NRI in April ’17 – to open PPF account for herself. Should i do that now ?
Thanks for your kind perusal.
Hi Neeraj,
It is difficult to make a decision if there are policy flip-flops.
However, if I were you:
1. I wouldn’t invest aggressively in PPF.
2. In my opinion, the notification is not retrospective. So, till september 2017, you should get full interest. However, many strange things have happened. Now that the notification of October 2017 is in abeyance, you should get full interest for FY2018.
3. No
Many thanks for your reply.
i will wait till 31st March and see if i get the full interest for FY 2018 , and then i will give it a try for one more year , off course by not investing aggressively but just to take the temperature of the situation.
Best Regards,
Yes, that’s the best approach. Do not invest aggressively.
Hi Deepesh,
I would like to close my wife’s PPF account which was opened in 2011 as I see there could be change in Govt policy and want to withdraw whole amount and invest somewhere else which is safe. Can we close the account by providing NRI proof or bank will not close now as it’s will complete 15 years in 2026.
Hi Rajiv,
Since October 2017 notification has been put in abeyance, your wife shouldn’t be allowed to close PPF account.
However, I am not sure if the bankers have received (or are aware of) the new notification.
To put in crisply, your wife shouldn’t be allowed to close but anything can happen.
I am am NRI who is holding a PPF account. Can I stll invest in PPF in April 2018?
Hi Natraj,
Yes, an NRI can.
However, the key question is whether he/she should.
I wouldn’t advise NRIs to invest aggressively in PPF.
The February 23, 2018 notification only talks about closure aspect of the account and nothing about interest rates.
Does that mean that only the closure aspect is in abeyance and the interest part (4%) is still valid (?)
From my point of view the Feb 23 notification is ambiguous.
Dear Ajay,
The earlier notification (in October 2017) has been put in abeyance.
So, the rules have reverted to how they were before October 2017 notification.
Hello Deepesh
I am a NRI and had a PPF account which I had extended twice after maturity. At that time I had no idea that a NRI could not extend the account. Recently when I came to India I closed the account without informing the bank about my nri status as I did not think it necessary. Now that I have come to know about the rules I am worried. Will I have to pay some penalty or just pay back the interest that I got for the extended period. Please guide me. Many thanks
Hi Rakesh,
As I see, the PPF Act speaks of returning the money without interest. There is no mention of any penalty.
If the demand is raised in the future (very unlikely though), you will have to return the interest amount for extended period (that’s my opinion).
Hello Deepesh
Thank you so much for your help. You have take a big load off my mind.
One more question. If a demand is raised in the future, will it be raised by the bank or the IT dept?
Thanks once again.
Hi Rakesh,
Most likely the bank.
The IT dept. will not have such information.
Hi Deepesh Raghaw thanks for sharing such important information on NRI as it will be very helpful for the people who wants to invest in india.The first they require before initiating any financial operation is PAN card.To get the hassle free NRI pancard service one can visit nrifinancialservices.com and also gets all the queries gets resolved by the help of expert team.
Hi Deepest, I am a NRI and still holding my PPF account, currently I want funds can I close the account based on NRI status
With the revised notification, you can’t close your PPF account purely on the basis of your residential status (in my opinion).
Btw, how old is your PPF account?
Hello Deepesh
I opened a PPF account in 1999, became NRI in 2002. Maturity was in 2014 but extended that to 2019. How will my interest be calculated. I’m in the USA, What do you suggest doing to PPF account now.
Dear Sandeep,
Technically, you shouldn’t have extended. You may not interest on the deposits made after the extension.
you must close the account in 2019 and hope to get lucky.
Hi,
I have a PPF account with SBI opened in 1999. I became an NRI in 2004 and kept contributing till the notification of RBI about NRIs not allowed to invest in PPF. in between my account was renewed and is now stated for maturity in March 2020. As per the notification i am not depositing money in my account. Now I want to close and take my funds out. However SBI is refusing to give me my funds stating that withdrawal is not allowed before maturity for NRIs. What is the way out and How do I withdraw my funds??
Hi Praveen,
It is a tricky situation.
NRI can’t extend PPF account, which you did.
Now that the account has been extended, banks are not allowing you to exit before maturity(extended).
Not sure how to go about it.
Btw, did you explicitly extend the account (submit form H and make contributions) or you have simply not withdrawn after maturity?
In the second scenario, it is easier to get the funds back.
Same debacle for sukhanya samrudhi account as well. We went and closed but i think they are not revising the rule for that like they did for PPF.
I understand. SSY rules are very clear. The account has to be closed when you become NRI.
Anyways, SSY is a new product. PPF is a bigger mess.
Dear Mr Deepesh,
Basic question – what exactly would be an NRI for PPF purposes? eg if somebody goes abroad for studies would he become an NRI? if yes when and at what instance? What would then happen to his PPF account? Would appreciate your clarifications. Thanks.