The NPS (National Pension Scheme) is a government-sponsored pension scheme launched in January 2004 for its own employees, and by the year 2009, it was available across all sections. NPS is designed for the subscribers to contribute a part of their income into the pension account spanning their working life.
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The National Pension Scheme (NPS) is a voluntary, long-term retirement savings scheme designed to enable systematic savings for retirement. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) in India. The scheme is open to all Indian citizens, including Non-Resident Indians (NRIs), subject to certain eligibility criteria.
Participants in the NPS contribute regularly during their working years, and upon retirement, they receive a lump sum amount along with a monthly pension to secure their financial well-being in retirement.
The NPS offers a range of investment options, including equity, corporate bonds, government securities, and alternative assets, allowing individuals to choose their preferred investment mix based on their risk appetite and financial goals.
Yes, an NRI can invest in NPS. Let us understand how an NRI can invest in NPS.
NRIs should consider investing in NPS, just like resident Indians, to secure their financial future post-retirement. Holding an NPS account ensures a hassle-free retirement.
Following is the criteria for NRIs to open an NPS account:
The NRI must be between 18 to 60 years of age.
Persons of Indian Origin (PIO) and Overseas Citizens of India (OCI) are not eligible to invest in NPS.
The NRI must comply with the prescribed KYC norms.
The NPS account for NRIs is discontinued if the NRI ceases to be a citizen of India.
Many Non-Resident Indians (NRIs) find the National Pension Scheme (NPS) to be an appealing investment option for securing their financial future and ensuring a worry-free retired life. This well-designed scheme offers flexible asset allocation features and investment objectives that can yield high returns. Here are some key features of the NPS for NRIs:
Travel Agnostic: The NPS for NRIs continues regardless of their location, as long as they hold Indian citizenship.
Voluntary Contribution: NRIs have the freedom to decide how much they want to contribute; there are no constraints.
Portfolio Management: NRIs can choose their asset allocation by selecting the Active mode option. Alternatively, if Auto Mode is chosen, the Fund Manager will handle the allocation. In Active Mode, investments are spread across four different asset classes:
Equity: Allocation in stocks and related instruments of listed Indian companies, up to 75% until the age of 50, gradually tapering to 50% at age 60.
Corporate Debt: Allocation in Corporate Bonds, Public Sector Units, and Public Financial Institutions.
Government Securities: Investments are made in State and Central Government Bonds.
Alternative Investment Funds: Allocation in Real Estate Investment Trusts (REIT), Infrastructure Investment Trusts (InvIT), Commercial Mortgage-Backed Securities (CMBS), Mortgage-Backed Securities (MBS), etc. However, a maximum of 5% of assets can be allocated to these funds.
Liquidity: The NPS remains locked until the subscriber reaches the age of 60. However, partial withdrawals are allowed to address urgent financial needs. After ten years of uninterrupted contributions, up to 25% of the corpus can be withdrawn. There must be a five-year gap between two withdrawals.
Following are the benefits of NPS for NRIs:
Maturity Benefit: The NRI NPS account is limited to Tier-I, maturing upon the subscriber's retirement at 60 years. NRI subscribers can remain invested in the NPS until the age of 70, with the option for continued fresh investments. They can also defer the lump sum receipt and annuity investment for up to 3 years after maturity. 60% of the corpus is disbursed in a lump sum and credited to the subscriber’s NRE or NRO account, as applicable. The remaining 40% must be mandatorily invested in a suitable annuity for a regular pension income by selecting a qualified scheme offered by the Annuity Service Provider (ASP).
Strict Monitoring: For NRIs, the NPS account is remotely maintained over the long term, addressing concerns about investment safety. The scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA) under the Government of India. It maintains vigilance over the fund's performance and promptly addresses any signs of irregularities.
Tax Benefits: Annual contributions to NPS are deductible up to Rs 1.5 Lakh under Section 80C of the Income Tax Act, 1961, subject to compliance with other provisions. An additional Rs 50,000 is deductible for the annual contribution under Section 80CCD (1B). Subscribers are entitled to withdraw 60% of the accumulated corpus in a lump sum upon maturity at 60 years without any tax liability. The remaining 40% is also tax-free if invested in an annuity. However, income from the annuity as a pension is taxable in accordance with prevailing laws.
Note: Tax benefit is subject to changes in tax laws. Standard T&C apply.
For depositing foreign earnings in Indian currency.
Fully repatriable (both principal and interest).
Tax-free in India.
For income earned in India while residing abroad.
Partially repatriable (subject to certain conditions).
Taxed as per Indian laws.
Tier I NRI Account: This is a compulsory NPS account where regular investments are made. The funds in this account are locked until retirement at 60 years of age.
Tier II NRI Account: Opening this account is optional and not applicable to NRIs. Fund withdrawals from this account are allowed to meet the subscriber’s emergency needs.
To subscribe to the NPS, an NRI must ensure they have an active email address and a registered mobile number linked to their Aadhaar card. Follow these steps for online registration:
Registration: Visit the PFRDA portal and select eNPS, Registration, and New Registration consecutively. Choose the Non-Resident Indian option to input personal, contact, and bank details on the registration page.
Scheme Parameters: Choose your preferred Fund Manager and investment mode (Active or Auto).
Documents Upload: Upload scanned copies of your PAN, Aadhaar, Passport, Photograph, signature, and a canceled cheque. Ensure that JPG or PNG files are below 2MB in size.
Subscription Payment: Make a minimum payment of Rs 500 through the bank’s net-banking facility to generate the Permanent Retirement Account Number (PRAN).
Application Authentication: Authenticate the application within 90 days of PRAN allotment to prevent the account from being frozen.
E-signature: Use an OTP sent to your Aadhaar linked mobile number for authentication.
Print and Courier: Sign and attach a photograph to the application form, then send it via courier. Alternatively, submit the completed and duly signed form at the bank where you hold your NRI account.
An NRI is permitted to open only the Tier-I NPS mandatory account in the scheme, and contributions accrue until retirement at 60 years of age. Here are the parameters governing contributions to NPS for NRIs:
The NRI must possess a bank account, either NRE or NRO, to fund the NPS account.
Contributions are deducted from this account, offering convenience to the NRI as they do not need to make individual remittances for each contribution.
The minimum deposit into the account is Rs 500 in a single transaction.
The minimum annual contribution is Rs 6000, with no upper limit.
There is no restriction on the frequency of contributions a subscriber can make in a year.
The NRI can opt to exit from the NPS before reaching the retirement age of 60, but only in exceptional circumstances outlined below.
In the unfortunate event of the NRI's passing, the beneficiary is eligible to receive up to 100% of the accumulated corpus.
If the corpus value is less than Rs. 1 Lac, the entire amount is disbursed.
However, if it exceeds Rs. 1 Lac, only 20% can be withdrawn, with the remaining 80% designated for mandatory annuity investment.
NPS for NRI offers a good option for building a nest egg for the retirement years. The process is safe and secure, with the PFRDA keeping an eye on the scheme’s performance and with the introduction of the d-Remit facility by the RBI, contributions to the scheme, withdrawal, and repatriation of the maturity corpus are easy and seamless.
*All savings are provided by the insurer as per the IRDAI approved insurance
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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