What happens to your EPF, PPF after you become an NRI and what should you do?

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Rishabh Kumar, 35, got a lucrative job in Dubai and decided to relocate there. He had spent over a decade as salaried employee in India and had accumulated a substantial corpus in the employees’ provident fund (EPF) account through monthly contributions from his side, which was matched by his employer. Rishabh had also opened a public provident fund (PPF) account with a bank and invested regularly each year to create a retirement corpus.

However, what would happen to his EPF and PPF accounts if his status changes from an Indian resident to that of an non-resident India (NRI) as provided in the laws? Among the definition for of an NRI for tax purposes is that a citizen who has stayed in India for a period less than 182 days in the preceding financial year.

Options for EPF

The EPF rules provide two alternatives to Rishabh for dealing with corpus. First, he can withdraw the entire accumulated amount and close it before moving abroad. The second option available to Rishabh is to let his account continue. The rules provide that even as an NRI you will continue to earn interest on your EPF account until you attain the age of 58. After that you can withdraw the EPF money. However, if a subscriber is likely to come back in a few years to India and work, it is better to let the account continue.

Investment advisors also say that given the current interest rate scenario, it would be wise for Rishabh to let his accumulation earn interest. “From an investment perspective, the returns and safety of EPF are high. It would be good to continue with the investment even after becoming an NRI,” Harshad Chetanwala Co-Founder MyWealthGrowth.com said.

The PPF strategy

In December 2019, the government notified the new Public Provident Fund (PPF) Scheme, 2019. As per the new scheme, any NRI who had a PPF account opened when he/she was a resident in India can continue with his/her account and make deposits up to Rs 1.5 lakhs in a financial year through NRE/NRO accounts and claim tax deduction if you are filing tax returns in India. However, one can continue the ongoing account only until it matures after 15 years. No extension is permitted for NRIs and the account needs to be closed and no interest will accrue after maturity.

PPF also permits NRIs to withdraw money prematurely after 5 years of opening for specific purposes such as medical emergencies in the family. Your withdrawals will be tax free in India.

“The 2019 rules allow an NRI to continue with their PPF account until maturity. The account will continue to earn interest. The tax implication at the maturity will be the same as a resident individual and it will be tax-free in the hands of NRI. However, they need to check the tax implication in the country they are residing,” Chetanwala said.

As per government decision, EPF gives an 8.5 per cent annual rate of interest while the PPF rate stands at 7.1 per cent. Chetanwala feels both are attractive interest rates given the present low interest rate scenario, with bank FDs given slightly above 5 per cent rate of interest, which is also taxable beyond a point.