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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.
