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Old 6th September 2018, 11:44   #1
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Default PPF, NRIs and FBAR compliance

The Government of India issued a terse two line notice during February 2018, keeping in abeyance their previous order, wherein an NRI had to close his PPF account. (or rather an NRI could close his PPF account).

This has created issues for NRIs who have PPF accounts in India which have yet to complete 15 years. On the one hand, they cannot close the PPF account and on the other hand FATCA requires disclosure of this account maintained in India-leading to possible taxation, penalties and what not.

With this abeyance, PPF accounts can only be closed prematurely on death, for requirement of funds for critical illness or for higher studies.

So what should the NRIs do?
Read this.

Last edited by GTO : 7th September 2018 at 08:39. Reason: FATCA
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Old 6th September 2018, 13:43   #2
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Default Re: FATCA and PPF of NRIs: What steps to be taken?

This rule has caused problems to many NRI's. The logic cannot be understood. The good part is that NRI's can continue investing in their immediate families name (spouse, child) provided they are Indian citizen and maintain resident status.
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Old 6th December 2018, 12:50   #3
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Default PPF, NRIs and FBAR compliance

This one has been sitting on the fence since nearly a year now. The GOI had issued a notification (amendment) on 3rd Oct, 2017 that PPF accounts of NRI's would deemed to be closed wef the day the beneficiary becomes an NRI.

PPF, NRIs and FBAR compliance-screenshot-20181206-12.26.34.png

This was followed by a 'clarification' dated 8th Jan, 2018:

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This created a mad scramble of NRIs/relatives trying to close accounts.

Subsequently, on 23rd Feb, 2018, the notification of the 3rd Oct, 2017 was kept in abeyance:

Name:  20190224nrippfaccountclosurerateofinterest4governmentnotification4jpg.jpg
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There has been no other notification or clarification from the GOI after this, to the best of my knowledge.

The problem is that NRIs are mandated to report their bank accounts, investments under FBAR and failure to do that could invite penal provisions.

Question:
  1. Is PPF accounts of NRIs opened before they were NRIs exempted from FBAR?
  2. Is there any way to close NRI PPF accounts (Other than the provisions of higher studies and critical illness)?

Given that there would be a lot of members on T-BHP who have the same issue, i would be glad of their advise.
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Old 15th June 2019, 17:11   #4
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Default Re: PPF, NRIs and FBAR compliance

Sorry to bump in this thread, but now it is getting relevant to me and I am curious to know about those BHPians living outside India (and tax resident outside India) who still have PPF.

Do they declare their annual interest earnings from PPF and pay tax on it outside India?
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Old 15th June 2019, 17:39   #5
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Default Re: PPF, NRIs and FBAR compliance

Quote:
Originally Posted by S_U_N View Post
Do they declare their annual interest earnings from PPF and pay tax on it outside India?
Isn't PPF coming under the EEE category, which means it's not taxed at any point?
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Old 20th June 2019, 17:58   #6
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Default Re: PPF, NRIs and FBAR compliance

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Isn't PPF coming under the EEE category, which means it's not taxed at any point?
Yes. But only from Indian Income Tax laws perspective.
This thread is about NRI's, so when you become tax resident in another country, the laws of that country also come into play.
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Old 20th June 2019, 20:42   #7
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Default Re: PPF, NRIs and FBAR compliance

Quote:
Originally Posted by S_U_N View Post
Sorry to bump in this thread, but now it is getting relevant to me and I am curious to know about those BHPians living outside India (and tax resident outside India) who still have PPF.

Do they declare their annual interest earnings from PPF and pay tax on it outside India?
From US tax law perspective, interest earned from PPF is not taxable, however, you have to report it on FBAR form if the value of the assets (subject to FBAR filing) you own goes above USD 10K.
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Old 21st June 2019, 19:58   #8
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Default Re: PPF, NRIs and FBAR compliance

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Originally Posted by atulsian View Post
From US tax law perspective, interest earned from PPF is not taxable, however, you have to report it on FBAR form if the value of the assets (subject to FBAR filing) you own goes above USD 10K.
Thank you. This is very interesting.
Do you have any clue how countries in Europe look at PPF income?
I am particularly interested in Norway and the tax consultant (EY) says taxable unless it can be categorized as pension based source or something.
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Old 21st June 2019, 20:24   #9
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Default Re: PPF, NRIs and FBAR compliance

My understanding is that in India, such overseas income will be treated along the similar lines as EPF/pension in India, ie tax free.

Last edited by KMT : 21st June 2019 at 20:25.
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Old 21st June 2019, 23:11   #10
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Default Re: PPF, NRIs and FBAR compliance

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Originally Posted by S_U_N View Post
Thank you. This is very interesting.
Do you have any clue how countries in Europe look at PPF income?
I am particularly interested in Norway and the tax consultant (EY) says taxable unless it can be categorized as pension based source or something.
It depends on tax treaties between India and Norway and the residency status of the individual in both counties You can refer to the tax treaty below.

https://mea.gov.in/bilateral-documen...ouble+Taxation
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Old 22nd June 2019, 10:36   #11
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Default Re: PPF, NRIs and FBAR compliance

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Originally Posted by atulsian View Post
It depends on tax treaties between India and Norway and the residency status of the individual in both counties You can refer to the tax treaty below.

https://mea.gov.in/bilateral-documen...ouble+Taxation
Thank you. I have gone through this treaty earlier as well. Unfortunately it does not seem to explicitly cover exempt income. This indicates that there is no exemption in Norway for PPF interest.

Last edited by S_U_N : 22nd June 2019 at 10:38.
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Old 12th July 2019, 11:38   #12
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Default Re: PPF, NRIs and FBAR compliance

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Originally Posted by atulsian View Post
From US tax law perspective, interest earned from PPF is not taxable, .
Are you sure about this?

I have just returned from the US, where i had an opportunity to talk with a CPA. He informed me that interest earned has to be shown in the tax returns and accordingly tax paid.
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Old 12th July 2019, 12:04   #13
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Default Re: PPF, NRIs and FBAR compliance

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Are you sure about this?

I have just returned from the US, where i had an opportunity to talk with a CPA. He informed me that interest earned has to be shown in the tax returns and accordingly tax paid.
It depends on the residency in both the countries. As per Article 20 of IRC,

Quote:
Any pension, other than a pension referred to in Article 19 (Remuneration and Pensions in
Respect of Government Service), or any annuity derived by a resident of a Contracting State from sources within the other Contracting State may be taxed only in the first-mentioned Contracting State.


2. Notwithstanding paragraph 1, and subject to the provisions of Article 19 (Remuneration and Pensions in Respect of Government Service), social security benefits and other public pensions paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.


3. The term “pension” means a periodic payment made in consideration of past services or by way or compensation for injuries received in the course of performance of services.
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Old 13th July 2019, 15:12   #14
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Default Re: PPF, NRIs and FBAR compliance

Just for your information, for Norway, I have confirmed now with the tax consulting Big4 after payment of fees that PPF interest is taxable when an individual is tax resident in that country (basically if you live there for more than 6 months in that year.)


I would be really surprised if US is not taxing it. PPF is not pension and has nothing to do with past services nor with retirement.
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Old 15th July 2019, 10:36   #15
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Default Re: PPF, NRIs and FBAR compliance

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Originally Posted by S_U_N View Post
I would be really surprised if US is not taxing it. PPF is not pension and has nothing to do with past services nor with retirement.
Precisely. This was the point that was discussed with the CPA. Although, i hear from the grape vine that the US Tax authorities are not interested in going after just these* defaulters. However, if you are caught in a bigger tax fraud or issue, then this could well surface.

* Being swamped with backlog of processing of returns.
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