National Pension Scheme for NRI

National Pension Scheme (NPS) for NRIs is a government-backed retirement savings scheme that allows Non-Resident Indians (NRIs) to build a retirement corpus in India. Managed by professional pension fund managers, the scheme invests in market-linked assets such as equity, corporate bonds, and government securities to help generate long-term returns. On retirement, subscribers can use the accumulated corpus to receive a regular pension while also withdrawing a portion of the funds as per applicable NPS rules.

NPS for NRI offers flexibility of investment options, transparent fund management, and tax* benefits as per the provisions of the Income Tax Act. The National Pension Scheme can play a vital role in retirement planning for people who want to diversify their long-term investments or those who are interested in retiring in India.

National Pension Scheme (NPS) is a voluntary retirement savings scheme governed by Pension Fund Regulatory and Development Authority (PFRDA). It is a way to promote regular saving by the people during their working years to create a retirement corpus to support financial requirements after retirement.

NRIs can invest in NPS by meeting the criteria and complying with the necessary know your customer (KYC) procedures. Based on their investment objectives and risk-taking ability, an NRI can invest in various asset classes in an NPS account, such as equity, corporate bonds, government securities, and alternative assets.  

There are two options for subscribers: Active Choice, which allows them to control their asset allocation and Auto Choice, which automatically adjusts allocation based on age.

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.

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.

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.

One of the key advantages of the National Pension Scheme for NRI is the availability of tax* benefits under the applicable provisions of the Income Tax Act. These benefits are subject to the subscriber's eligibility, residential status, and prevailing tax laws.

Contribution benefits (under Indian Income Tax Act)

Eligible contributions made to NPS for NRI may qualify for tax deductions under the relevant sections of the Income Tax Act.

Some of the key benefits include:

• Tax deductions may be available on eligible NPS contributions.
• Additional deductions may be claimed under applicable tax provisions, subject to prescribed limits.
• Eligible contributions can help reduce taxable income in India.
• Tax benefits are governed by the prevailing provisions of the Income Tax Act.

What is E.E.E. status for NRIs

E.E.E. stands for Exempt-Exempt-Exempt, a tax treatment where contributions, investment growth, and withdrawals receive tax* benefits under specified conditions.

For the National Pension Scheme for NRI, the tax treatment depends on the applicable provisions of the Income Tax Act and the prevailing NPS regulations.

Key points to know include:

• Eligible contributions may qualify for tax deductions.
• The investment corpus grows according to market performance and applicable regulations.
• Withdrawal taxation depends on the prevailing rules at the time of exit.
• NRIs should review the latest tax provisions or seek professional advice before making investment decisions.

The National Pension Scheme for NRI is a structured retirement planning solution that combines disciplined investing with professionally managed funds and diversified asset allocation. NPS for NRI also offers tax benefits under the applicable provisions of the Income Tax Act, making it a useful option for eligible investors planning their retirement. NRIs can invest in NPS after confirming their eligibility, understanding the withdrawal rules, and selecting an investment strategy that aligns with their long-term financial goals.