Many NRIs working abroad, plan to return to India after retirement. For this, one needs to maintain their lifestyle and financial independence even after they stop working. Starting early with a retirement pension plan for NRI helps you build a sufficient corpus. This corpus helps ensure you live comfortably without depending on others. Choosing the right NRI pension scheme today means securing your tomorrow. This article explains everything you need to know about retirement pension plans for NRIs.
What is a pension plan?
A pension policy is a financial instrument that allows you to accumulate a retirement corpus in the long term during your employment. It is referred to as the accumulation phase. Then, upon maturity, you can withdraw a portion of the accumulated corpus and invest the remaining fund to purchase an annuity plan. The annuity plan helps provide a regular income until desired. It is referred to as the vesting phase. The entire policy duration ranges from 10 to 30 years.
Types of retirement pension plans for NRIs
NRIs can choose different types of pension plans based on their goals, age, and risk tolerance. Two commonly used options include ULIPs and government-backed or social security schemes.
Unit-Linked pension plans (ULIPs)
ULIPs are a two-in-one product. Your premium is split into two parts. One part provides life insurance coverage to protect your family. The other part gets invested in market-linked funds like equity or debt. This structure allows you to grow your retirement corpus while staying protected.
As an NRI, you can choose from:
Equity funds for high growth potential
Debt funds for stable returns
Balanced funds for a mix of both
Additionally, you benefit from India's growing economy over the long term. Your investments compound over time, building a sufficient retirement fund. This plan may suit individuals who seek both financial protection and potential capital appreciation.
Government-backed and social security options
Several government schemes cater specifically to NRI pension needs.
Employees' Provident Fund (EPF) works as a social security benefit. Both you and your employer contribute a portion of your salary each month. Before moving abroad, you can withdraw these accumulated funds or keep them invested.
Atal Pension Yojana (APY) is for those working in unorganised sectors. You need an active Indian bank account to participate. The scheme guarantees a fixed pension amount after you turn 60.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) focus on senior citizens specifically. It provides regular pension income with government backing. This scheme offers stability and predictable returns.
Benefits for NRI to invest in retirement pension plans
Investing in retirement pension plans offers various benefits to NRIs, some of which are as follows:
You can save systematically by investing a portion of your savings into these plans.
The plan helps you build a fund that you can withdraw partially or wholly during retirement.
You can purchase an annuity plan to secure a regular post-retirement income at monthly intervals.
These plans serve the dual purpose of investment growth and essential financial protection for your family.
Retirement plans provide the necessary framework to achieve financial stability for your future.
NRI tax benefits on retirement pension plan in India
The tax* benefits on retirement pension plans for NRIs are as follows:
You can claim a deduction* of up to 21.5 lakh each financial year on the funds you put into your NPS Tier 1 account under Section 80C of the Income Tax Act.
Section 80CCD (1) also allows NRIs to save up to 21.5 lakh while claiming tax deductions* on their Indian income. This applies to contributions made to the Atal Pension Yojana (APY) or the National Pension Scheme (NPS).
There is an additional tax deduction* of up to Rs. 2,50,000 on pension fund contributions available under Section 80CCD(LB). This makes your total potential deduction, including the one under Section 800, reach up to 22 lakh. However, the total combined deduction* under Sections 800 80CCC, and 80CCD(1) cannot go over 21.5 Lakh (Section 80CCE).
You should also understand the Double Taxation Avoidance Agreement (DTAA), covered under Section 90 & 91. This agreement helps you avoid tax* on the same income in both the country where the income is earned and your country of tax residence.
Regarding NPS tax rules, NRIs can withdraw 60% of the final maturity amount without paying tax*. The remaining 40% can be used to buy an annuity plan, which helps provide regular pension income.
Important pointers to consider while purchasing NRI pension plan
Choosing the right plan requires careful evaluation. Focus on the following points while selecting a plan.
Compare historical returns across different plans before deciding. Check performance data from the past 5 to 10 years. This gives you a realistic picture of what to expect. Short-term returns can mislead you.
Check the repatriation clause thoroughly in your policy documents. This clause determines whether you can transfer your maturity proceeds abroad. Some plans restrict fund transfers outside India. Others allow full repatriation without complications.
Conclusion
NRI pension schemes help you accumulate a corpus for your retirement years. If you plan early, your investments will grow and compound during the term. If your retirement is 10 years or more away, go for plans with longer-term growth. You may opt for ULIPs or government schemes to achieve your retirement goals. Compare different NRI retirement schemes and choose one which aligns with your personal needs and financial needs.
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