The Government has temporarily dismissed its earlier notification regarding the closure of Public Provident Fund (PPF) accounts of NRIs that was issued last year.
According to the new office memorandum released by the Department of Economic Affairs (DEA) on Feb. 23, the earlier notification about the closure of PPF accounts has been provisionally removed. “It has presently been decided to keep the related notification in abeyance till the additional order in this regard,” the office memorandum declared.
The earlier notification was issued on Oct. 3, 2017, by the Department of Economic Affairs(DEA). The amendment to the (PPF)Public Provident Fund Scheme, 1968, declared in the official gazette, “If a resident who opened an account under this scheme subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes a non-resident.”
Interest will be compensated at the rate applicable to Post Office savings accounts till the date the PPF account is closed. The Post Office savings account fetch an interest rate of 4 percent, which is almost half of that for PPF at now.
For the PPF scheme, the period of maturity period is 15 years, but the same can be extended for further five years and so on for Indian citizens. The scheme sanctions withdrawal every year from the seventh financial year from the year of the opening account while the loan amenity can be availed from the third financial year.
The PPF is a tax-free savings tool that was formulated in 1968 by the Ministry of Finance.
Before 2003, Non-resident Indians(NRIs) were not allowed to make any participation in their existing PPF accounts — i.e. accounts opened before their residential status changed to NRI (Non-Resident Indian). In 2003, however, a new notification authorized NRIs to continue investing in their PPF accounts that existed till maturity.
According to PPF rules, an investment of minimum Rs 500 per financial year is needed. The principal invested in PPF qualifies for deduction under Section 80C of the Income-tax Act, 1961, and the interest received is also exempted from tax under Section 10.
The account can be opened through cash or cheque, and in case of cheque, the date of realization of a cheque in the government account is taken as the date of opening of an account. The subscriber can begin another account in the name of minors however subject to maximum investment limit by adding balance in all accounts.
PPF is a debt-oriented asset class, i.e., one’s investment is not disclosed to equities, and therefore returns are not linked to the stock market’s performance. The interest rate on PPF returns is set by the government every quarter based on the return(yield) of government securities. In 1968-69, PPF offered a 4 percent per annum interest, while from 1986-2000 it offered 12 percent. Today in 2017-18 (Jan 1 to March 31, 2018) it offers 7.6 percent.