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National Pension Scheme (NPS) for NRI

NRIs can invest in NPS, a retirement savings scheme in India, through NRE/NRO accounts. It offers long-term financial security and tax benefits.

The National Pension Scheme, or NPS, is a government-sponsored pension scheme for resident and non-resident Indian citizens. You can contribute a portion of your income regularly throughout your working years to an NPS account to create a pension fund to add financial security to your golden years.

Along with resident Indians, the scheme is an excellent saving and investment option for NRIs who want to plan for their retirement in India. However, NRIs may often be confused about the benefits the scheme holds for them and its various aspects.
 

This post will tell you everything you need to know about the NPS scheme for NRI, such as its benefits, eligibility, investment options, tax* implications, and withdrawal rules.

Read on to find out how to secure your future with the NPS.

What is NPS?

NPS stands as a voluntary pension scheme with defined contributions initiated by the Indian government in 2004. It aims to provide social security and financial independence to all citizens of India, including NRIs.

Under the NPS, you can open an individual pension account and make regular contributions until you reach 60. Your contributions are invested in various asset classes such as equity, corporate bonds, government securities, and alternative investments by professional fund managers appointed by the Pension Fund Regulatory and Development Authority, the regulator of the NPS.

Upon retirement, you can take a portion of your accumulated savings as a lump sum, while the remainder you can utilise to purchase an annuity, ensuring a steady lifelong income.

What are the Benefits of NPS Scheme for NRIs?

You can enjoy the following perks under this retirement plan as an NRI:
 

  • Low cost: You can open an NPS account with a minimum initial contribution of ₹500 for Tier I (mandatory) and ₹1000 for Tier II (optional). No lower or upper limits exist on the number of contributions per year. The fund management charges are also very low, ranging from 0.01% to 0.1% per annum.

  • High returns: NPS offers market-linked returns2 that can help you beat inflation and create a sizable corpus over the long term. NPS schemes' historical average annual returns have been around 9% to 15%, depending on the asset allocation and fund manager performance.

  • Tax benefits: You can get tax deductions on your NPS contributions up to ₹1.5 lakh under Section 80CCE and ₹50,000 under Section 80CCD(1B) of the Income Tax Act. Moreover, up to 40% of your corpus withdrawn at maturity is tax-free.

  • Flexibility: You can choose your fund manager, investment option, and asset allocation per your risk appetite and financial goals. You can also switch between fund managers and investment options once a year. You can also make partial withdrawals for specific purposes.

  • Portability: You can operate your NPS account from anywhere in the world through online access. You can also continue your NPS account even if you again become a resident Indian.

Eligibility Criteria for the National Pension Scheme for NRI

To invest in this Indian government pension scheme for NRI, you must fulfil the following eligibility criteria:
 

  • You must be between 18 and 60 years old.
  • You should have a valid bank account in India, either a Non-Resident External (NRE) account that is repatriable or a Non-Resident Ordinary (NRO) non-repatriable one.
  • You should comply with the KYC norms prescribed by PFRDA.
  • You should have a PAN card with a valid PAN number.

NPS NRI Registration

You can open an NRI NPS account either online or offline. Here are the steps to follow:
 

Online
 

  • Visit the official website of eNPS and click on 'Registration.'
  • Select 'Non-Resident of India' as the applicant's status and choose between 'Repatriable' or 'Non-repatriable' as the account type.
  • Select 'Permanent Account Number' as the option for registering, and enter your PAN number, passport number, bank details, and country of residence.
  • Fill up all the essential details online and upload scanned copies of your photograph, signature, PAN card, passport, and cancelled cheque.
  • Make an online payment of a minimum of ₹500 for a Tier I account or ₹1000 for a Tier II account using net banking or debit card.
  • Print the completed form and sign it. You must send it to the Central Recordkeeping Agency (CRA) within 90 days of registration. If you fail to do so, your account will be frozen.
     

Offline
 

  • Visit any bank branch registered as a Point of Presence (POP) under the NPS scheme and collect an NRI NPS application form.
  • Fill out the form with the required details and attach copies of your photograph, address proof, signature, PAN card, passport, and cancelled cheque.
  • Submit the form along with a minimum contribution of ₹500 for a Tier I account or ₹1000 for a Tier II account to the POP.
  • The POP will verify your documents and issue you a Permanent Retirement Account Number (PRAN) card and a welcome kit.

What are the Investment Options and Withdrawal Rules for NPS for NRI?

You can invest in Tier I and II accounts under this government scheme for NRI in India. Tier I is a mandatory account that is meant for retirement savings and has tax benefits. Tier II is an optional account for general investments with no tax benefits but more liquidity. Other investment options are outlined below.
 

Investment Options

You can choose between two investment options for your NPS account: Active Choice and Auto Choice.
 

  • Active Choice:
    Under this option, you can decide your own asset allocation among four asset classes: equity, corporate bonds, government securities, and alternative investments. However, there is a cap of 75% on equity exposure till the age of 50, which reduces by 2.5% every year until it reaches 50% at the age of 60.

  • Auto Choice:
    The system automatically approves your asset allocation based on age and risk profile under this option. There are three life cycle funds available under this option: Aggressive (LC-75), Moderate (LC-50), and Conservative (LC-25). The equity exposure in these funds starts from 75%, 50%, and 25%, respectively, at the age of 18 and gradually decreases to 15%, 10%, and 5%, respectively, at 55.

There is also an option to switch your fund manager or investment option once a year without any charge.
 

Withdrawal Rules

Generally, you can withdraw from your NPS account only after the age of 60. In case of premature exit, there are certain conditions.
 

  • Upon attaining the age of 60:
    You can withdraw up to 60% of your corpus as a lump sum without tax liability. The remaining 40% must be used to buy an annuity from a PFRDA-empanelled service provider offering an annuity plan. This plan will pay you a regular income for life. However, if your corpus is less than ₹2 lakh, you can withdraw the entire amount without buying an annuity.

  • Before attaining the age of 60
    You can exit the NPS scheme prematurely after 10 years of contributions. In this case, you can withdraw 20% as a lump sum, and the rest (80%) must be used to purchase an annuity. You can withdraw the entire amount without buying an annuity if your corpus is less than ₹1 lakh.

  • Partial withdrawal:
    You can withdraw up to 25% of your contributions after 3 years. Withdrawals are permissible for education, marriage, medical treatment, or house purchases. You are a maximum of three withdrawals over your NPS account's tenure, with at least five years between each withdrawal.

Conclusion

NPS is a great NRI investment plan for your retirement in India, and allows you to enjoy market-linked returns, tax benefits, flexibility, and portability. You can open an NPS account online or offline and choose your fund manager and investment option as per your preference.

You can also withdraw from your NPS account per the prescribed rules and receive a regular income after retirement. So, what are you waiting for? Start investing in NPS today and secure your future with the NPS.

Peaceful Retirement Awaits: Discover Your Perfect Pension Plan

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

What is the National Pension Scheme for NRI?

NPS for NRIs allows Non-Resident Indians to participate in India's National Pension System. NRIs can open Tier I and Tier II accounts and enjoy repatriable benefits, making it a viable retirement savings option for those living abroad.

What is 80CCD 1B for NRI?

80CCD(1B) is a special tax benefit in India, even for NRIs. It allows tax savings of up to ₹50,000 when contributing to the National Pension Scheme for NRI.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • 2Market-linked returns are subject to market risks and terms & conditions of the product. The assumed rate of returns or illustrated amount may not be guaranteed and depends on market fluctuations.