How NPS for NRI (Non-resident Indian) Works?
The Government of India launched the National Pension Scheme (NPS) to enable subscribers to make planned contributions toward their retirement corpus. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Both Indian residents and non-resident Indians are eligible to invest in the NPS.
NPS is a market-linked scheme with the potential to yield high returns. The PFRDA appoints seven fund managers to provide fund management services, of which you can choose one. You can also choose between different asset classes and the proportion of funds to invest in them. Furthermore, there are tax savings over and above the tax benefits of investing in other schemes. Even NRIs, especially those with income sources in India, can invest in this scheme to benefit from tax exemptions and create a retirement pension corpus. Continue reading to learn more about NPS for NRIs.
Overview of Scheme
Here are details of NPS for NRIs, at a glance:
|Eligibility||Applicable to 18-60 years of age complying with KYC norms.|
|Source of contribution||You can contribute to the NPS with the help of an NRE or NRO Account.|
|Tax Benefits||An income of up to Rs. 2 lakh invested annually in NPS Tier 1 is exempt from income tax under Section 80 CCD of the Income Tax Act|
|Returns||As the NPS invests in debt and equity, the expected returns are market-related.|
|Minimum Contribution||Tier 1: Rs. 500 per contribution and Rs. 6,000 per annum|
|Maximum Contribution||No upper limit|
|Premature withdrawal||Up to 25% of invested amount for specific reasons at one time after three years|
|Exit Rules||In following conditions subscriber can exit from NPS:Upon Superannuation – 40% to be used to purchase annuities for regular pension income and the remaining funds can be withdrawn as lump sum.Premature exit – After ten years, 80% to be used to buy annuities and 20% can be withdrawn as a lump sumUpon Death of Subscriber – The nominee/legal heir of the subscriber would receive 100% of the accumulated pension corpus.|
Features and Benefits of NPS for NRIs
Here are the features of NPS for NRIs:
- The scheme comes in two different forms — Tier 1 and Tier 2
- Tier 1 is called the pension account, and you have to mandatorily contribute to it annually to keep the account active.
- Tier 2 is the investment account with no minimum investment mandates.
- Tier 1 account provides tax benefits to salaried as well as self-employed people under sections 80 CCD and 80 CCD (1b). The income of up to Rs. 1,50,000 invested in the Tier 1 fund of the NPS scheme is exempt from income tax.
- A minimum contribution of Rs. 6,000 per annum is essential to keep the NPS Tier 1 account active.; there is no minimum contribution for the Tier 2 account.
- You have an option to choose from two investment options:
- Auto Choice: In this case, the investment in different classes is made on your behalf.
- Active Choice: In this case, you have to select the asset classes and the proportion of investment. You can choose from:
- Asset E: These are mainly equity-related securities in which you can invest up to 75% of your portfolio. The Investments are made in Indian companies listed on stock exchanges and other equity-related instruments.
- Asset G: These are government securities
- Asset C: These are fixed income tools such as Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Commercial Mortgage-Backed Securities (CMBS), Mortgage-Backed Securities (MBS), etc. excluding government securities
- You can also choose among these seven fund managers providing the NPS facility:
- Aditya Birla Sun Life Pension Management
- UTI Retirement Solutions
- HDFC Pension Management
- Kotak Mahindra Pension Fund
- ICICI Prudential Pension Fund Management
- SBI Pension Fund
- LIC Pension Fund
The benefits of investing in NPS are:
- The fund management fee for NPS is meagre as compared to other funds.
- There is tax exemption on up to Rs. 2,00,000 invested in the scheme under section 80 CCD of the Income Tax Act.
- The option to allocate investments through Active Choice allows you to manage your risk-return profile actively.
- Since the scheme is market-linked, there is a potential for high returns.
- You can choose to change your fund manager every year. This allows you to analyse the fund performance and change your preference.
- You can check your account balance and deposit funds online, which makes managing an NPS account hassle-free.
- PFRDA regulates NPS, which has transparent investment norms, a regular monitoring process, and performance reviews of fund managers. Compared to similar pension products around the world, NPS has the lowest account maintenance costs. While savingIf you are saving for a long-term goal like retirement, the costs matter a lot since the charges can reduce the corpus by a significant amount.
- In retirement, pension wealth accumulates with compound interest over time. As account maintenance charges are low, subscribers eventually benefit from accumulated pension wealth.
Procedure to Open NPS Account for NRIs
- Visit the NPS Trust website by clicking here.
- Click on ‘National Pension System’ and then on ‘Registration.’
- You can choose to register with either Aadhaar or PAN card. Select the applicant type as ‘Non-resident Indian.’
- Select ‘Repatriable’ or ‘Non-Repatriable’ account type
- Enter your passport number and Aadhaar/PAN card number. An OTP will be sent to your registered mobile number
- After entering the OTP, enter the bank account details for the non-repatriable account type. For repatriable account type, select a bank from the list of banks and then enter the account details and submit NRE/ NRO account details.
- Your personal information will be auto-fetched from your Aadhaar or PAN. Fill in the rest of the details, including nominee details. After you upload a photo and signature, you will be taken to a payment link.
- On making the payment, you will receive an acknowledgement receipt. The details will be sent to the Central Record-keeping Agency (CRA), which will then send you the 12-digit Permanent Retirement Account Number (PRAN) on your mail and phone number.
- You can also visit the bank branch and fill out the form there and submit it.
- The Tier 2 NPS for NRI account cannot be opened online; you will have to visit the bank branch.
In order to open an NPS account, an NRI would need the following documents:
- Indian Passport
- PAN card
- India Address proof
- Application form
- Recent passport size photograph
- Cancelled cheque of your NRE/NRO account
Rules for Exit and Withdrawal from NPS Scheme
There is no restriction on withdrawing funds from the Tier 2 account. However, withdrawal from Tier 1 NPS accounts for NRIs has some rules.
A mandatory annuitization must be at least 80%; a lump sum withdrawal must not exceed 20%; if the corpus is more than Rs.1.00 Lac, complete withdrawal is allowed.
Exit at 60
You can completely exit from NPS at the age of 60. Upon exit, you can withdraw 60% of the amount as a lump sum, and 40% of the amount is used to buy annuities for your pension income. If the total accumulated corpus is greater than 2 lakhs, you can opt for a 100% lump sum withdrawal
There is an option to extend the withdrawal of the lump sum, the annuity or both up to the age of 70 years.
Upon Death of the Subscriber
A nominee may receive 100% of the NPS pension wealth in a lump sum if such an unfortunate event occurs.
The NPS scheme for NRIs has the same benefits as for residents. The government has made it extremely convenient to invest through e-NPS, through which you can open a Tier 1 NPS account with no manual touch point. The account is subject to any additional NRI regulations specified by the RBI and FEMA (Foreign Exchange Management Act). So, if you are an NRI and have considerable income back home, investing in NPS can benefit you.
Is it possible to have multiple NPS accounts?
No. One individual can only have one NPS account.
Can I open an NPS account jointly with someone?
No. An NPS account is an individual account and cannot be jointly opened with anyone or through the HUF.
What will happen to my Tier 2 account if I close my Tier 1 account?
Your tier 2 account will close with your tier 1 account, and the proceeds will be redeemed and transferred to your bank account.
Which are the annuity schemes available under NPS?
Annuity for life– the payment of the annuity ends on your death.
Annuity for life with return of purchase price on death– The annuity ceases, and your nominee receives the purchase price of the annuity on your death.
Annuity for life with 100% Annuity payable to spouse on your death– You will receive an annuity for life. On your death, your spouse will receive an annuity for life. It ceases when both of you are dead.
Annuity for life with 100% Annuity payable to spouse on your death and return of purchase price – You will receive an annuity for life. On your death, your spouse will receive an annuity for life. On their death, the annuity ceases, and your nominee receives the purchase price of the annuity.
Can I invest in NPS even if I have invested in other pension and provident fund schemes?
Yes. You can invest in NPS, Atal Pension Yojana, and provident fund schemes at the same time.
Are there any tax exemptions for investing in NPS over and above the exemption limit of Rs. 1.5 lakhs in section 80-C of IT Act?
Yes. There is an exemption on Rs. 50,000 invested in NPS as per section 80-CCD(1b), which is over and above the exemption in section 80-C of IT Act.