NPS for NRI

The subscriber is entitled to withdraw a part of the accumulated corpus upon retirement and invest the remaining balance into a suitable annuity to receive a regular lifetime income for a financially comfortable retired life. The scheme is open to all Indian citizens, provided they comply with the prescribed KYC norms. 

Now the question arises can the NRIs invest in NPS? 

The answer to this question is, yes, an NRI can invest in NPS. Let us first understand who an NRI is and then check out how the NRIs can invest in NPS works. 

Eligibility Criteria for NPS for the NRI

The NRI should consider investing in NPS like any resident Indian to plan for life post-retirement. The NRI’s financial future is secured by holding the account retirement without any hassle. The following are the bare minimum criteria for the NPS for NRI:

• The NRI must be aged between 18 to 60 years.
• Persons of Indian Origin (PIO) and Overseas Citizens of India (OIC) are not eligible to invest in NPS. 
• The NRI must comply with the stipulated KYC norms. 
• The NPS for the NRI account is discontinued when the NRI ceases to be a citizen of India. 

Understanding the Features of NPS for NRI Account 

Many NRIs find the NPS an attractive investment option for securing the financial future for a worry-free retired life. The well-thought-out scheme is laced with flexible asset allocation features and investment objectives to yield high on investments. Some of the salient features of NPS for the NRI are listed below:

1. Travel Agnostic

   The NPS for the NRI account continues regardless of where the NRI is located as long as the individual is an Indian citizen. 

2. Voluntary Contribution

   The contribution does not constrain the NRI, who decides how much to contribute.

3. Portfolio Management

   The NRI has ample flexibility to decide on the asset allocation by choosing the Active mode option. The Fund Manager allocates the assets if the Auto Mode is chosen. The subscriber in the Active Mode spreads the investments in market instruments in four different asset classes listed below:

   1. Equity

      Asset allocation in stocks and related instruments of listed Indian companies up to 75%  till 50 years of age, gradually tapering to 50% at 60 years.

   2. Corporate Debt

      Assets are allocated in Corporate Bonds, Public Sector Units, and Public Financial Institutions.

   3. Government Securities

      Investments are made in State and Central Government Bonds. 

   4. Alternative Investment Funds

      Assets are allocated in Real Estate Investment Trust (REIT), Infrastructure Investment Trusts (InvIT), Commercial Mortgage-Backed Securities (CMBS), Mortgage-Backed Securities (MBS), etc. However, a maximum of 5% of assets is allowed to be allocated in these funds.

4. Liquidity

   The NPS is locked till the subscriber retires on attaining 60 years of age.  However, partial withdrawals are allowed to meet the fund’s crunch. Up to 25% of the corpus can be withdrawn after ten years of uninterrupted contributions. There must be a gap of five years between two withdrawals. 

Benefits of NPS for NRI Account 

After learning about the features that make the NPS for NRI popular and not miss the following benefits accrued from the account:

1. Maturity Benefit

   It is already known that the NPS for the NRI account is restricted to Tier-I only, which matures upon the subscriber’s retirement at 60 years. The NRI subscriber can stay invested in the NPS up to 70 years of age with continued fresh investment.  The subscriber can further defer the lump sum receipt up to 70 years and annuity investment up to a maximum of 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 the case may be. The remaining 40% must be mandatorily invested in a suitable annuity for a regular pension income by choosing a qualified scheme annuity provided by the Annuity Service Provider (ASP). 

2. Strict Monitoring

   For the NRI, the NPS account is maintained remotely over the long term. Doubts about investment safety are an obvious concern. However, the scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA), under the Government of India. It is alert about the fund’s performance and any sign of irregularity. 

3. Tax Benefits

    Annual contribution to NPS is 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 50000 is deductible for the annual contribution under Section 80CCD (1B). The subscriber is entitled to the withdrawal of 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 as per the extant laws. 

   Note: “Tax benefit is subject to changes in tax laws. Standard T&C apply.”

The Difference Between NRI and NRE

While there is no ambiguity about the contribution mode and quantum, it is essential to clarify the following points for good measure:

1. Bank Account

   1. NRE Account

      A Non-Resident External bank account is either savings or term deposits to harbour investments from overseas income. The account balance is repatriated. 

   2. NRO Account

      A Non-Resident Ordinary bank account, on the other hand, is either a savings or term deposits harbouring funds generated locally. The NRI cannot freely repatriate the balance in this account. 

2. NPS Account

   1. Tier I Account

      It is a mandatory NPS account where the regular investment is lodged. The fund in this account is locked till retirement at 60 years of age.

   2. Tier II Account

      Opening this account is optional and not applicable to NRIs. Fund withdrawal in this account is allowed to meet the subscriber’s emergency needs. 

      While the NRI is an individual, the NRE is a bank account that the NRI is permitted to open. The NRI lives abroad for an uncertain period exceeding 182 days in the previous financial year for employment, vocation, or any other valid purpose to enjoy full citizenship rights, including possession of the NRI Credit Card.

      Similarly, the difference between NRI and OCI is that the former is an Indian citizen enjoying all the rights are privileges enshrined in the Indian constitution, while the OCI is granted only limited rights and freedom. 

Opening of NPS for NRI Account

The NRI must have an active email address and a registered mobile number linked to the Aadhaar card as a prerequisite for subscribing to the NPS. The steps required to subscribe online to the NPS for NRI are defined below:

1. Registration

   The PFRDA portal facilitates NPS registration. Get going at the portal by choosing the eNPS, Registration, and New Registration sequentially to start the process. Invoke the Non-Resident Indian option to enter personal, contact, and bank details on the newly opened registration page.

2. Scheme Parameters

   Select the Fund Manager and the investment mode - either the Active or Auto as preferred. 

3. Documents Upload

   Upload scanned copies of documents like the PAN, Aadhaar, Passport, Photograph, signature, and a cancelled cheque. The JPG or PNG files must not exceed 2MB in size.

4. Subscription Payment

   Pay the minimum of Rs 500 through the bank’s net-banking facility to generate the Permanent Retirement Account Number (PRAN).  

5. Application Authentication

   The application must be authenticated within 90 days of PRAN allotment, or the account is frozen. The two available options are:

6. E-signature

   Invoke the e-sign option to authenticate through an OTP using the Aadhaar linked mobile number.

7. Print and Courier

   Fix a photograph, sign the application form, and courier it. Alternatively, submit the completed and duly signed form at the bank holding the NRI account. 

How to Contribute to NPS for NRI?

NRI is allowed to open only the Tier-I NPS mandatory account in the scheme, and the contributions are accumulated till retirement at 60 years of age. Listed below are the parameters governing contributions to NPS for NRI:

• The NRI must have a bank account, either NRE or NRO, for funding the NPS account. 
• The contributions are recovered from this account, which is convenient for the NRI as he need not remit for each contribution. 
• The minimum deposit into the account is Rs 500 in a single transaction.
• The minimum annual contribution is Rs 6000, and there is no upper limit.
• There is no bar on the number of times a subscriber can contribute in a year. 

Understanding NPS for NRI Premature Exit 

The NRI is allowed to exit from the NPS before attaining the retirement of 60 years only in exceptional circumstances with riders described below. 

• In the event of the NRI’s demise, the beneficiary can receive up to 100% of the accumulated corpus.  
• Up to 100% of the accumulated corpus is paid if the value is less than Rs. 1 Lac.
• If the accumulated corpus is over Rs.1 Lac, only 20% withdrawal is allowed, and the remaining 80% must be used for compulsory annuity investment.

To Conclude

Contrary to the general perception, the NPS for NRI offers a good option for building a nest egg for the twilight retirement years. The process is safe and secure, with the PFRDA keeping an eye on the scheme’s performance. 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. 

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