NPS for NRI - How NRIs can open NPS Account

The motive of the scheme is to ensure the financial stability of the elderly post-retirement by giving some percentage as a lump sum and rest in the form of pension after superannuation. NPS is managed by PFRDA or Pension Fund Regulatory and Development Authority, so one does not need to worry about the authenticity of the program. The scheme is open to all Indian citizens except for the people from the armed forces. NRI can invest in NPS too.

Definition of NRI

NRI or Non-Resident Indians are those individuals who reside outside of the Indian Territory, but they hold an Indian passport and are eligible for various schemes as other Indian citizens according to the guidelines of the government. The National Pension Scheme allows NRIs to invest in the scheme. But Persons of Indian Origin or PIO and Overseas Citizen of India or OCI are not permitted to invest in NPS. The difference between NRI and OCI is that NRI is an Indian citizen who lives outside of India, while OCI is a foreign citizen who has an Indian origin but is allowed to come to India any time for work, study, etc.

Eligibility Criteria for NRIs to Invest in NPS

They are specific eligibility conditions that must be fulfilled by NRIs in order to invest in NPS. Here is the list of all eligibility criteria:

  • The NRI should be between the age of 18 and 60.
  • NRI must have either an NRE or NRO account to contribute to the scheme.
  • Must hold a valid Pan Card.
  • The minimum amount required for account opening is rupees 500.
  • The minimum amount to be contributed every year in NPS is rupees 6000.

Procedure to Open NPS Account for NRIs

NRIs who meet all the above-mentioned eligibility criteria can now invest in the scheme. NRI can invest in NPS by following the given procedure:

Step 1: The first step for the interested NRIs is to either download the NRI NPS form from the official website of the banks that offer the NPS scheme or get the form from the bank's branch.

Step 2: Now it is time to fill up the form with all the necessary details. Make sure everything is accurate in order to avoid any inconvenience at later stages.

Step 3: Submit all the required documents asked by the bank.

Step 4: Once submitted, the bank will now verify all your documents and forward the form to the Central Record Keeping Agency or CRA.

Step 5: Pay the first deposit through cheque and remember the minimum amount for account opening is rupees 500. After the first payment via cheque, subsequent payments can be made online.

Step 6: After paying the first payment, NRI will receive the receipt of the same, and the application is now digitised.

Step 7: At last, the Central Record Agency will provide a 12-digit unique code to the NRI known as PRAN. Its full form is Permanent Retirement Account Number. The unique code will be provided through email or SMS.

Features of NPS Account for NRIs

The pension scheme is designed to financially empower retired individuals by providing various features that make the scheme flexible and secure. Let's walk through all the promising features of the NPS scheme:

  • The scheme comes in two different forms Tier 1 and Tier 2.
  • Tier 1 is also known as a pension account under which it is mandatory to invest until maturity to avail of all benefits.
  • Tier 2, which is also known as an investment account under this the amount invested can be withdrawn anytime.
  • Tier 1 offers tax benefits while Tier 2 does not. (*Tax benefit is subject to change in tax laws*)
  • The minimum amount required to open an account under Tier 1 is rupees 500, while under Tier 2, it is rupees 1000.
  • The total minimum payment under Tier 1 in a year should be rupees 1000 (minimum amount per payment is rupees 500), while in Tier 2, there is no compulsion for total minimum payment in a year (but the minimum amount per payment should be rupees 250).
  • Under Tier 1, partial withdrawal is available. After a lock-in period of three years, the scheme allows the investor to withdraw 25% of the amount invested at once. The withdrawal is allowed a maximum of three times during the entire period of the scheme.
  • The exit option under Tier 1 states that a minimum of 40% of the total invested amount should go for the annuity scheme, while the remaining 60% can be withdrawn in a lump sum.
  • 40% of the withdrawn amount will be considered tax-free. (*Tax benefit is subject to change in tax laws*)
  • If the investors want, they can withdraw the amount before the age of 60 years but at least ten years after the scheme starts.
  • 20% of the total amount can be withdrawn in the form of a lump sum, while the remaining 80% will go for the annuity scheme.

Advantages of NPS for NRIs

The scheme NPS for NRI has several advantages if one decides to invest in it. Great market returns and the facility of premature withdrawal makes it one of the most attractive pension schemes in the market. Here is the list of all the benefits that come with the NPS:

  • NPS has a meagre management cost of 0.01%. Unlike other schemes where they charge 2-3%, which decreases the maturity amount significantly.
  • Since NPS is market-linked, the returns will be relatively higher than non-market-linked schemes.
  • The scheme offers flexible investment options. Investors can choose the fund manager of their choice and can change the fund manager once during a financial year.
  • Investors can also define where they want their assets to be allocated. The asset allocation can be changed twice during a financial year.
  • People from all backgrounds (except for armed forces) can invest in the scheme. They can invest from anywhere in India.
  • With 24x7 around-the-clock online accesses, the investors can access all the necessary info anytime.
  • The scheme allows a one-time transfer of superannuation amount to NPS without any tax liability.
  • Investors can keep investing even after being retired. The investment can be continued till the age of 70 years.
  • Investors can also choose not to withdraw the amount for 70 years of age.
  • If the total invested amount is less than rupees 200,000, the investors can withdraw the entire amount at once after completing the age of 60 years.
  • Upon the death of the investor, the nominee will receive the entire invested amount at once.

List of NPS Service Providers

There are a lot of banks and financial institutions in the country that offer NPS for NRI. Here is the list of some popular institutions where an investor can go and invest in the scheme.

  • Bajaj Allianz Life Insurance
  • HDFC Pension Management
  • ICICI Pru Pension Fund Management
  • Kotak Mahindra Pension Fund
  • LIC Pension Fund
  • Reliance Capital Pension
  • SBI Life Insurance
  • UTI Retirement Solutions

Allocation of Funds

NPS is a very flexible and investor-friendly scheme. It not only allows the investors to choose the fund manager of their choice but also gives them the option to allocate their funds based on their convenience. Investors can opt for any of the one options out of the given two, i.e., Active choice and Auto choice.

If investors opt for Active choice, they can allocate their funds in three different venues. The venues are E, C, and G Asset Classes. Investors will be required to tell the fund manager how much of their funds will go in different asset classes.

  • Asset E – this class mainly consists of equity-related market securities. Investors can invest a maximum of 50% of their funds in Asset E.
  • Asset C – these are fixed income instruments but do not consist of any government securities.
  • Asset G – these are government securities.

If an investor decides to go for option two, i.e., Auto choice, this is a lifecycle fund. The funds will be allocated to different venues as per the lifecycle matrix and considering the investor's age. Investors can choose the fund manager of their choice.

Tax Benefits under NPS

As we already know, NRI can invest in NPS and will get all the benefits like other Indian citizens. Other than providing higher returns and flexible investment options, NPS also helps an investor save some taxes. The tax benefits under NPS are available to both salaried and self-employed investors.

Tax benefit for Salaried

  • The contribution made by the salaried investor up to 10% of its salary will become eligible for deduction from the total income under section 80 CCD (1). The overall limit is rupees 150,000.
  • NPS has a special provision of tax deduction under sub-section 80 CCD (1B) in which investment up to 50,000 will be tax-free above the limit set under Section 80 CCE. This benefit is exclusive to the NPS scheme only.

Tax benefit for Self-employed

  • Self-employed investors will enjoy a tax deduction of up to 10% of their gross income with a maximum limit of rupees 150,000 under Section 80 CCE.  (*Tax benefit is subject to change in tax laws*)

Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply.

**Tax benefit is subject to changes in tax laws.

Written By: PolicyBazaar - Updated: 02 June 2021
Pension Plans
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
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