The simple answer is NO, as of today an NRI cannot open an account and start pumping in money. That might not sound so palatable but that is how it is.
But there must be many NRIs that would have opened PPF accounts before they became NRIs ? What about them ? Can those NRIs invest in the PPF account each year ? There is a bit of history behind this.
Prior to 2003, even if you had a PPF account and became an NRI subsequently, you could not park any money in this account. The government prohibited investments into this product for you.
But in 2003, via a notification, the government allowed existing NRIs to continue investing in the Public Provident Fund if they already had an account. So as it stands today, if you already have a PPF account before you became an NRI you can continue to invest Rs 1 lakh into it till this matures.
Best Practices –
1. Use NRO/NRO account for investments - It is important to note that if you are an NRI, you cannot transact with your savings account you might have had in India – what you need is an NRE (Non Resident External) or NRO (Non Resident Ordinary) account. So an NRI is expected to invest via any of these accounts into the PPF account each year.
2. NRI cannot extend PPF account - A PPF account can actually be extended for 5 years after its maturity. However, this is not allowed for an NRI and he/she will have to withdraw the entire deposit on maturity. Remember that if you forget to withdraw, the PPF account will remain open, will earn interest and you will not be expected to invest even the minimum Rs 500 in it.
3. What if you do not invest each year ? - If you already have an account and have not been investing in it, then your account would have become dormant by now. You can obviously revive it by paying Rs 500 for each year that you did not invest for plus a penalty of Rs 50 – that is a pittance for NRIs ! I think it would be a blunder not to use the PPF account for investing your money and let it become dormant.
4. Account opened after becoming a NRI ? - Well this is actually not allowed ! If you goofed up or played smart and ended up opening the account after you became a NRI, then you need to close this as soon as possible. It is legally not the right way to invest in India.
5. NRIs are subject to currently risk - If you keep continuing to invest in the PPF for say 15 years but at the time of maturity the rupee has fallen significantly, then you could potentially be looking at a depleted PPF corpus. You need to be aware that you are carrying this risk but can wait out by using the PPF extension block of 5 years and take your maturity value at a later and better time.
6. Can NRIs take the money back to their country of residence ? Yes, the government of India allows USD 1 million per year to be repatriated each year by NRIs. What you can do is park the PPF maturity proceeds in the NRO account and from there repatriate the money to your US dollar accounts.
7. Taxation - The taxation part of PPF depends on which country you reside in. In the US, the interest value will be taxable as the US laws do not recognize PPF as a retirement vehicle. Please consult a local tax expert to clarify your position.
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