I opened a savings bank account for my son when he was a minor. When he became an adult, the account was converted to a joint account with me as a second joint holder. This account is still in operation and has a balance of less than ten thousand rupees at any given time. My son left for Australia in December 2023 to take up employment there. Before leaving, he tried to close his PPF A/c but was told that it would have to run for a minimum of 15 years. His PPF account will complete 15 years in the next financial year, with a maturity amount of approximately ₹7 lakh. I have been told that it cannot be extended as he is an NRI now. Can the maturity proceeds of his PPF account be remitted to him abroad? Now that he is an NRI, does the savings bank account also need to be converted into an NRO, even though I am the second joint holder and a resident? Is the interest in a NRO account taxable even though it is far below the taxable limit, and at what rate?
Tax and account conversion considerations for NRI son’s PPF maturity and joint savings account
A person becomes a non-resident under FEMA as soon as he leaves India to take up employment outside India, start a business or vocation outside India, or leave the country with an intention to stay outside India indefinitely. So, your son became a non-resident under FEMA when his aircraft took off.
An NRI cannot continue his resident savings account. Upon becoming a non-resident under FEMA, he must get such an account into NRO. The savings account needs to be redesignated as an NRO account. You may remain the second joint holder in such an account even though you are a resident. The interest on all NRO accounts is taxable, and the bank will deduct tax at source (TDS) on the interest credited on all his NRO accounts, including the savings bank account. Your son can claim a deduction under section 80TTA up to ₹10,000 for interest earned on his NOR savings account.
If your son’s taxable Indian income, including the NRO interest, is less than the basic exemption limit of ₹2.50 lakh, he need not file an ITR. However, TDS will continue to apply, and the only way to get this refunded is by filing an ITR. In other words, though filing an ITR is not mandatory, it must be filed in case he desires the tax deducted to be refunded.
Lastly, you have been advised that the PPF account is correct. Once a person becomes a non-resident under FEMA, he can continue to contribute to his PPF account until it matures but is not allowed to extend it beyond its original or extended maturity period.
The maturity proceeds of the PPF account may be credited to his NRO account. A non-resident can remit up to 10 lakh USD annually outside India. For this purpose, the bank will require an undertaking from your son and a certificate from a chartered accountant certifying that taxes, if any, due on the amount to be remitted have been paid. CBDT has prescribed formats for both the undertaking and the certificate; the bank should be able to provide you with the same.
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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
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