NPS scheme is a retirement driven saving scheme wherein you can earn market-linked returns on your investments to create an inflation-adjusted corpus which meets your financial needs post-retirement. The scheme is a regular investment scheme wherein you would have to contribute every year till maturity. Moreover, after maturity, the NPS scheme promises the payment of guaranteed pensions for your life to create a source of regular income after you retire.
The NPS scheme can be subscribed to by citizens of India whether they are residents or not. Thus, non-residents can also invest in the NPS scheme and plan for their retirement. Let’s understand how –
In this article
NPS for NRI
To invest in the NPS scheme, NRIs would have to fulfil the basic eligibility criteria. These criteria include the following –
- You should be aged between 18 and 60 years of age
- You should have a valid bank account which can be either a Non-Resident External (NRE) Account which is repatriable or a Non-Resident Ordinary (NRO) Account which is non-repatriable
- Compliance with the KYC norms is also required to open the NPS account for NRI
- You should have a PAN Card with a valid PAN number
- NRIs are allowed to open only Tier I NPS account
How to invest in an NRI pension scheme?
Investment in the National Pension Scheme for NRIs can be done either through the NPS website or through any bank which allows NRIs to open an NPS account in their name. To open the NPS for NRI online through eNPS, the following steps should be taken –
- Visit the official website of eNPS which is https://enps.nsdl.com/eNPS/NationalPensionSystem.html
- Click on ‘National Pension System’ and then click on ‘Registration’
- A new page would open wherein you should select ‘Non-Resident of India’ in the ‘Status of Applicant’ field
- You can register for NPS for NRI online through your PAN card number and so you should select the ‘Permanent Account Number’ option under the head ‘Register With’
- Next, you would have to provide the NRE or NRO bank account number, passport number, PAN card number and your bank
- Also, mention the country wherein you are currently residing
- Click on ‘Continue’
- Provide the details of your investment and pick the scheme and pension fund manager
- You would have to upload scanned copies of your documents, signature and photograph
- Complete filling up the form and print the completed form
- The printed form should then be signed and sent to the Central Recordkeeping Agency within 90 days of registering for the NPS scheme. If you don’t do that, your NPS account would be frozen
Details of National Pension Scheme for NRI
Here are some of the details of the NRI pension scheme which you should know about –
- Your NPS investments would continue till you remain a citizen of India. If your citizenship status changes, the NPS account would be closed
- When you invest, you would have to choose the pension fund manager that would manage your investments. There are seven pension fund managers appointed by the Pension Fund Regulatory and Development Authority (PFRDA) and you can choose anyone. You can also change the chosen pension fund manager over the investment period
- You would have to choose the investment mode too. There are two investment modes of Active and Auto. If you choose the Active mode, you would have to specify the funds in which you want to invest and the percentage of allocation in each fund. If, however, you choose the Auto mode, you would have to choose your risk profile. Your investment would, then, be allocated to the funds based on the risk profile that you selected
- You can appoint nominees to collect the fund value in case of your premature demise. The NRI pension scheme allows you to appoint up to three nominees
- To open the Tier I NPS account for NRI, you should contribute a minimum of Rs.500. Thereafter, every financial year, a minimum contribution of at least Rs.500 would be required to keep the account active. Moreover, a minimum investment of Rs.6000 would be needed every year, till the maturity of the scheme to keep the account active.
- There is no maximum limit of investment
- A Permanent Retirement Account Number would be allotted once the NPS account is successfully opened
Withdrawals from NPS for NRI
Tier I Account does not allow easy withdrawals from the scheme before maturity. However, you can withdraw partially for specific financial needs like meeting the education costs, paying for medical expenses, buying a house, etc. Partial withdrawals are allowed after three years of investment and you can withdraw up to 25% of the fund value at one time.
Tax benefits of NPS for NRI
NRIs invest in the NPS scheme for the tax benefits which they can avail to lower their tax liability. The main tax benefits which are offered by the NRI pension scheme are as follows –
- Investments into the scheme, up to Rs.1.5 lakhs, are allowed as a deduction from the taxable income of NRIs. This deduction is allowed under Section 80CCD (1) and includes the deduction limit of Section 80C
- An additional deduction can be availed under Section 80CCD (1B) for investing in the NPS scheme. This deduction is allowed up to Rs.50, 000 in addition to the deduction offered under Section 80CCD (1)
- When the scheme matures, NRIs are allowed to withdraw up to 60% of the corpus in a lump sum. This lump sum withdrawal is called commutation and the commuted value of the pension is treated as a tax-free income in their hands
The NPS scheme, therefore, allows NRIs to build up their retirement corpus with tax-saving benefits. Moreover, after maturity, 40% of the uncommuted corpus pays lifelong pensions and there are different pension payment modes too. NRIs can choose a suitable pension option to receive regular incomes after they retire. Under some pension payment options, the lump sum fund value is paid to the nominee if the NRI dies. The NPS scheme, therefore, offers multiple types of benefits and can help NRIs plan for their retirement in an effective manner.