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NPS for NRI

The NPS, or National Pension System, is a government-sponsored scheme that was launched in 2004. Originally, it was meant only for government employees who were planning retirement or wealth accumulation. ...Read More

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Pension Schemes and Retirement Plans

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NPS for NRI

What is the National Pension System for NRI?

What is NPS (National Pension Scheme)?
July 16, 2024

Table of Content

 

NPS i.e., National Pension System, is a scheme launched by the government to create financial security for its citizens through a systematic investment. Initially, only government employees were eligible to participate in the scheme. Subsequently, the scheme was extended to every sector, including the NRIs. 

Through the National Pension System for NRI, non-resident Indians can create a corpus for their retired life from across the globe. It entails contributing a part of their income into the NPS for NRI account till 60 years of age. The contributions are invested in diverse assets like government securities, equity, corporate bonds, etc. Professional pension fund managers NPS will manage the investments efficiently to get higher returns. 

On maturity, they can withdraw a part of the retirement savings NRI and invest the rest in an annuity scheme for a regular income stream throughout their golden years. However, the contributions to the National Pension System for NRI should be routed through an NRE or NRO account.

Benefits of the National Pension System for NRIs

The benefits of the National Pension System for NRI are manifold. They are:

Tax Benefits

Besides planning for the retired life NRIs can also avail tax benefits for NPS of NRI’s and save on the taxable income. As an NRI, you are eligible for deduction under Section 80CCE* of the Income Tax Act 1961 for investments up to Rs. 1.50 lakhs in the NRI pension scheme. A further deduction of Rs. 50,000/- under Section 80CCD (1B)* is available. Additionally, 60% of the funds withdrawn on maturity is tax-free.

Long-Term Financial Security

Regular investment in the NRI pension scheme ensures long-term financial security through varied investment options. The market-linked returns NPS have the potential to outpace inflation and encourage substantial wealth accumulation. Flexible withdrawal options at retirement ensure financial stability. Also, there is an option to invest a portion of the corpus in an annuity for a regular stream of income throughout life. This guarantees long-term financial security. At the time of investment, you can use a pension calculator to assess how much lifetime pension you will get if you invest right away.

Flexibility and Portability

Invest in NPS for NRI for the dual advantage of flexibility and portability. You have options to create an investment portfolio and choose fund managers depending on your risk appetite and financial goals. You can change your fund allocation and the funds manager once a year. You can withdraw a part of the fund for discrete purposes. Permission to operate the account online from across the globe is an added advantage.

Lower Costs

The initial contribution to NPS investment option NRI is as low as Rs. 500 for Tier I, which is compulsory and Rs. 1000 for Tier II, which is optional. The scheme does not specify a lower or upper limit for the number of contributions in a year. Also, the fund management charges are kept very low at 0.01% to 0.1% per annum. 

Higher Returns

NPS investment option NRI is preferred due to the high returns offered by the scheme. The fund managers prudently manage asset allocation and the market-linked returns can beat inflation and enable wealth accumulation. The average returns of 9% to 15% depending on the funds manager performance and asset allocation show the efficacy of the National Pension System NRI in providing higher returns.

Eligibility Criteria for NPS for the NRI

NRIs have to fulfil certain specifications set out in the scheme to qualify to invest in the scheme. The eligibility criteria for NPS NRI are given below:

  • The applicant should be between 18 to 60 at the time of opening the account.
  • An NRE or NRO account is mandatory.
  • The NRI should comply with NPS KYC norms prescribed by the PFRDA. All the required KYC documents have to be submitted.
  • NPS for NRI is an individual account and cannot be opened on behalf of a third person. 
  • The subscriber should have a valid PAN card..

How to Enroll in the NPS Scheme for NRIs

Investment in NPS for NRI is prudent in NRI financial planning. You should open an NPS account to start the contribution. It is possible to open NPS for NRI accounts both online and offline. 

If you are confused about how to open NPS account NRI, follow the procedure given below for a seamless experience:

Online

This is a convenient option to enroll in the NPS scheme for NRIs from anywhere across the world.

  • Access the eNPS website.
  • Under the applicant’s status, choose Non-Resident Indian.
  • For the account type, choose between repatriable and non-repatriable.
  • For the option for registering, choose the permanent account number. Provide the PAN number, country of residence, passport number, and bank details.
  • Complete the application with essential details.
  • Upload scanned copies of passport, PAN Card, photograph, signature, and cancelled cheque.
  • Use any of the payment gateways provided and make a payment of Rs. 500 for the NPS Tier I account NRI and Rs. 1000 for the Tier II account.
  • Take a printout of the completed online application form.
  • Affix your signature and send it to the Central Recordkeeping Agency within 90 days of registration.
  • Your account will be frozen if the CRA does not receive your application within the specified period.

Offline

If you are not comfortable with the online process and can visit the service providers personally you can adopt the offline method to enroll for the scheme.

  • Visit any bank branch designated as a Point of Presence (POP) under the National pension system for NRI.
  • Collect the application form for NPS for NRI account.
  • Complete the form with the required details and affix your signature.
  • Submit a copy of the PAN, passport, address proof, cancelled cheque, and photograph along with the application.
  • Submit the application form at the designated counter along with Rs. 500 for the Tier I account and Rs. 1000 for the Tier II account.
  • The POP will review your application and the documents and issue a Permanent Retirement Account Number (PRAN) and a welcome kit.

What are the Investment Options in NPS for NRI?

You can open two types of accounts under the NPS for NRI scheme. A Tier I account with a minimum initial deposit of Rs. 500 and a Tier II account with a minimum initial deposit of Rs. 1000. 

Apart from these accounts, other NPS investment options NRI are:

Active Choice

Here, your preference of asset as per your risk appetite and financial goals is considered. You can choose among the asset classes available i.e., corporate bonds, government securities, equity, and alternative investments. However, the equity investment is restricted to 75% which will decrease by 2.5% every year until it reduces to 50% by the time you attain 60.

Auto Choice

Under this option, the asset allocation is automatic based on your age and risk profile. There are three life cycle funds available under this choice i.e., Aggressive (LC-75), Moderate (LC-50) and Conservative (LC-25). The equity exposure starts at 75%, 50%, and 25%, respectively, under these funds at 18 years of age. It keeps decreasing slowly to reach 15%, 10%, and 5% respectively by 55 years of age. This ensures a tailored investment approach that adjusts over time to match your changing financial needs and risk tolerance.

Tax Advantage of NPS for NRIs

The following are the main tax advantages provided by NPS for NRIs. These include:

  • Tax Benefits to Self-employed: For self-employed taxpayers, contributions to the National Pension Scheme qualify for tax deductions under Section 80 CCD (1) of the Income Tax Act, 1961. Existing NPS subscribers can avail deductions of up to 20% of their gross total income earned from Indian sources.
  • Tax Benefits to Employee: For employee taxpayers, contributions to the National Pension Scheme qualify for tax deductions under Section 80 CCD (1) of the Income Tax Act, 1961. Existing NPS subscribers can avail deductions of up to 10% of their salary earned from Indian sources.
  • Deductions can be claimed under 80C, 80CCC and 80CCD(1) of Income Tax Act, 1961 but the total deductions cannot exceed Rs 1.5 lakh a year for all the investments put together as per provision of Section 80CCE.

Additional Tax Benefits: NRI subscribers can avail an additional Rs. 50,000 tax deduction on their yearly contributions as per the provision of Section 80 CCD 1(B). This limit is over and above the Rs. 1.5 lakh limit under Section 80CCE*, No deduction under this Category shall be allowed in respect of the amount on which a deduction has been claimed and allowed under Section 80CCD(1).Note that these deductions are available for only the Old TaxRegime. The above deductions are not available under the New Tax Regime. 

What are the Withdrawal Rules for NPS

You can withdraw the amount in the NPS for NRI accounts only after attaining 60 under the terms for withdrawals from NPS NRI. However, in the case of premature withdrawals, the following conditions are stipulated:

Before Retirement (Early Exit)

For withdrawals before retirement i.e., before attaining 60 years of age the conditions are:

Full withdrawal

The subscriber can withdraw a 100% lump sum if the accumulated funds are less than Rs.1/-. In unfortunate cases, if the subscriber expires during the term of the scheme, the nominee will receive 100% of the pension fund in a lump sum.

Premature Exit

You can exit the scheme before attaining 60 years only if the account has completed 10 years. Only 20% of the corpus can be withdrawn in lumpsum and the residual 80% should be invested in an annuity plan to get regular income for life. If the retirement corpus is less than Rs. 1/- lakh you can withdraw the entire amount without investing in an annuity plan.

At Retirement (Normal Exit)

Normal exit from the NPS account for NRI is on attaining the retirement age. 

Age of Exit

You can exit the NPS for NRI account upon attaining 60 years of age. NRIs are permitted to stay invested until 70 years of age. 

Lump Sum Withdrawal

During the normal exit, you can withdraw 60% of the retirement corpus NRI in a lump sum. There are no NRI tax deductions for the lump sum in India.  The rest 40% should be utilised to purchase an annuity plan from an authorised PFRDA service provider. You will earn regular income throughout your life as per the annuity plan chosen and those shall be taxable.

After Retirement

If subscribers intend to stay invested after retirement they can do so for 15 years. A deferment request 15 days before their retirement has to be registered. No NPS contribution NRI is permitted during the deferment period. The deferment options available are:

Deferring Withdrawal

You can opt to defer the withdrawal or annuity or both annuity and lump sum and buy the annuity plan. You can also defer the withdrawal of a lump sum and the purchase of an annuity. In this case, PRAN charges are collected. 

Phased Withdrawal (Systematic Lump sum Withdrawal (SLW)

Withdrawal of the lump sum amount in phases is also permitted and can be opted at the time of Superannuation (Retirement/attained 60 years of age) Exit. Subscribers are allowed to withdraw on a periodical basis viz. monthly, quarterly, half-yearly or annually for a period till 75 years as per the choice of the Subscriber at the time of their exit post retirement/ superannuation or upon reaching 60 years as the case may be.

How NRIs Can Invest in NPS?

Any Non-resident Indian (NRI) between the ages of 18 and 60 years as of the date of submission of their application can invest in the National Pension Scheme (NPS). However, some rules are applicable for NRIs to invest in NPS:

  • Overseas Citizens of India (OCIs) and Persons of Indian Origin (PIOs) are not eligible to open an NPS account.
  • You need to have either an NRE account or an NRO account to transfer funds to your NPS account.
  • NRI subscribers have to contribute at least Rs. 6000 to their Tier 1 NPS account in a financial year; otherwise, their accounts will be frozen. 

Conclusion

Age 60 is the significance of retirement and pension for most of us. We are constantly worried about financial security post-retirement. NPS for NRI is a good plan for retirement in India. The advantages of this plan are market-related returns, tax benefits, flexibility, and portability. The requisite for subscribing to this plan is an NRE or an NRO account. The contributions to the non-resident external account NPS should be through these accounts only. You can create a substantial retirement corpus and also get a regular income through annuity plans with small contributions to this plan. Using a retirement calculator can help you plan your contributions effectively.

Additionally, incorporating a life insurance policy as part of your retirement planning can provide an added layer of financial security for your loved ones. Life insurance ensures that in the event of your untimely demise, your family is financially protected and can maintain their standard of living. Open an NPS for NRI account and invest in a comprehensive plan that includes both retirement savings and life insurance for a financially secure and protected retired life.

FAQs on NPS for NRIs

Q. Is NRI eligible for NPS?

Yes NRIs are eligible for an NPS for NRI account if they are between 18 to 60 years of age. Complying with the PFRDA KYC norms is mandatory. The NRI should have a valid PAN and submit a copy of the PAN card while opening the account.

Q. What happens to my NPS account after I become NRI?

You can continue the NPS account if you become an NRI. However, the contributions to NPS NRI should be routed through an NRE or NRO account. You will have to change the status of your bank account to a Non-resident account or open a fresh NRE or NRO account, and subsequent remittances to the NPS account should be from any of these accounts.

Q. What happens to NPS if I become OCI?

If you become OCI, your citizenship will change. According to NPS guidelines, the NPS account should be closed upon citizenship change. However, you can open a fresh NPS for the NRI account and start saving for your future in the new account.

Q. What is premature withdrawal from NPS for NRI?

Premature withdrawal from NPS for NRI is withdrawing the amount before maturity i.e., before retirement or attaining 60 years of age. The NPS guidelines stipulate a minimum contribution of 5 years from the account opening date to withdraw the funds before maturity. Also, only 20% of the corpus can withdraw in lump sum. The remaining 80% goes to an annuity plan for a regular income.

Q. What happens to NPS if I quit my job?

You can continue the NPS account even if you quit your job. Portability is the advantage of an NPS account. It can be transferred between sectors, and if you take up a new job the contributions will come from the new employer. However, if you decide to quit your job and start a business, you can continue the account but the subscriptions should be done on your own as your employer will no longer remit the contributions.

Q. What are the tax benefits of NPS for NRIs?

You can invest up to 20% of your gross income in an NPS for non-resident Indians account and avail an amount up to Rs. 1.50 lakhs as tax deduction under Section 80CCE of the Income Tax Act 1961. Additionally, you can invest up to Rs. 50,000/- and get tax benefits under Section 80CCD (1B)*.

Q. Can I invest in NPS as NRI?

Yes, any NRI between 18 and 60 years of age who complies with the country’s KYC norms are eligible to open an NPS account at any Indian bank or post office. 

Q. Is NPS Tier 2 available to NRIs?

Yes, NRIs can open a Tier 2 NPS account only if they already have a Tier 1 NPS account to make voluntary contributions. NRIs have to make at least one deposit in their Tier 2 account worth at least Rs. 2000 in a year.

Q. Is tax benefit under Section 80CCD available to NRIs?

Yes, Tax benefit for contributions to NPS is available to both Indian residents and NRIs, if opted for Old Tax Regime.

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References

https://www.indembassybern.gov.in/docs/20150821151542163.pdf

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Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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