Understanding the Public Provident Fund (PPF) in India: Features, Advantages, and Considerations for NRIs

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The Public Provident Fund (PPF) is an investment and savings plan. It is provided by the Indian government. It is considered a secure investment option because the government guarantees it and the interest rate is reasonable.

Features of PPF Account

The key features are –

1. A PPF account must be opened and maintained with a minimum balance of ₹500.

2. Each financial year, a maximum of ₹1,50,000 may be deposited.

3. The deposit can be made in whole or over the course of 12 payments; it’s not required to do so every month.

The Indian government sets the interest rate. Here are the interest rates for the previous four quarters.

January-March 2023 7.1%

October-December 2022 7.1%

July-September 2022 7.1%

April-June 2022 7.1%

Advantages of PPF

1. It provides decent returns.

2. It is an effective tool for long-term savings.

3. Accounts are simple to create and maintain.

4. Under Section 80C of the Income Tax Act, annual PPF contributions are taxdeductible. The deduction is available for investments up to 1,500,000. You can make tax-deductible contributions to the PPF accounts of your spouse and offspring.

5. A loan facility is available subject to certain conditions. It is available from the third fiscal year through the sixth fiscal year after account opening. For instance, if you opened a PPF account in January 2018, you can apply for a loan beginning in April 2019. You can obtain a loan until the end of the fiscal year -> 2023-24.

6. Cash withdrawals are tax-free.

7. Facility of partial withdrawal is available

Disadvantages of PPF

1. Unlike equity-based products, the rate of interest is fixed, so returns are also fixed.

2. The account is rendered inactive if the minimum contribution is not made. You must submit your request in writing and pay a fee.

3. If you want liquidity in your investments, it is not the greatest option.

4. The utmost sum you can invest is capped, thereby limiting the corpus to that extent.

5. Unless the account is opened in the name of a minor, PPF does not permit joint accounts.

PPF for NRIs

PPF account rules for NRIs have changed numerous times. Here are the current applicable rules: –

1. A PPF account cannot be opened by an NRI in India.

2. A resident Indian, however, has the option to create a PPF account and then convert to NRI status. Such a person may keep the PPF account open until it matures.

3. When the PPF account reaches maturity, the NRI is legally required to close it. There aren’t any exceptions listed.

4. NRIs are unable to add to or withdraw from their PPF accounts as a result. The PPF account can only be closed at maturity, or after 15 years have passed.

5. No interest is paid after the maturity term if the NRI disregards the guidelines and leaves the account open.

6. Let’s say an NRI continues to make contributions to the PPF account after maturity without telling the bank about the change of residency. No interest will thereafter be due on the contributions when they reach maturity.

Maturity of PPF Account for NRI There are two distinct categories of PPF withdrawals. One involves a full withdrawal at maturity, while the other involves a partial withdrawal. NRI must comprehend the terms of these two withdrawals:

1) Premature Withdrawal

NRIs can withdraw from the seventh year onwards, from the date of opening of the account. But as stated below, there are a few restrictions that apply.

1. Life-threatening ailment of the account holder

2. A serious disease of the account holder

3. Children’s higher education

In the event of an early withdrawal, the account’s accrued interest is subject to a fee. The penalty is a 1% reduction from the applicable interest rate for the period in question.

2) On Maturity

At maturity, the amount cannot be left in the account because it will no longer accrue interest. At maturity, NRIs are required to take out the entire PPF balance. The NRO account is credited for both partial and whole withdrawals. Additionally, only the maturity amount may be repatriated abroad; partial withdrawals cannot.

PPF Account Taxation for NRI

PPF is a tax-free investment in India, where returns are not subject to tax. However, once the PPF account reaches maturity, the NRI has no choice but to terminate the account and withdraw the maturity proceeds in full. Thus, the maturity amount is credited to the NRO account and is subject to taxation in accordance with the NRO account’s tax rules.

Alternatives to PPF

You cannot cease investing. You must expand your prosperity and put your money to work for you. Consequently, you can consider other investment opportunities, such as –

1. FDs in NRE accounts – A low-risk investment that provides tax-free interest income. The interest rate ranges between 4.9% and 7.75%.

2. FDs in FCNR Account – Low-risk investment with tax-exempt interest earnings (except for RNORs).

3. Mutual Funds – You may invest in a variety of mutual funds that invest in various asset classes. You obtain the prospective advantages of diversification, expert administration, and high returns.

4. NPS – Investing in National Pension Scheme (NPS) is another alternative. You have the option to select the asset-class distribution of your investment portfolio. However, there are withdrawal and taxation restrictions. Therefore, only invest if you agree with these principles.

How to Close PPF Account?

1. Fill out Form C (PPF Withdrawal Form) completely.

2. Keep your KYC documents handy, including copies of your identification and proof of address, canceled cheque, etc.

3. Create a permission letter authorizing someone to submit the withdrawal paperwork on your behalf in the event that you are unable to close it personally.

4. The bank where you have an NRE/NRO account should be visited. Get a bank official or a gazette officer to testify to all of your paperwork.

5. To withdraw your PPF, go to the PSU bank where your account is now open. You can also request that the funds be moved to your NRE or NRO account.

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