In the wake of the current situation globally, many NRIs are moving back to India planning to retire here with family and friends. For many, it had been a long term goal before they moved abroad. NPS for NRI comes out as one of the best investment options for NRIs as it helps in creating a retirement corpus that provides both financial independence and taxation benefits. In this article we’ll explore these aspects of the National Pension Scheme (NPS).
What is NPS?
The National Pension Scheme (NPS) is the retirement scheme of the Government of India. There have been many changes in NPS by the government so it has become a bit complex for people to understand. So here, we will break it up into fragments and understand it completely making it simpler for everyone.
NPS for NRI: Highlights
Minimum-Maximum Age: 18-60 years
Tax Benefits: Up to Rs 1.5 lakh under Sec 80C and Rs 50,000 under Sec 80CCD(1B)
- There are no lower or upper limits to the number of contributions per year. The Subscriber is free to manage the frequency and amounts of contributions. There are two types of Accounts under NPS:
- Tier 1: Money in this account is locked until retirement. If you retire before the age of 60 you may take 20% of the investment as cash (tax-free). The remaining 80% is invested into an annuity (an investment that pays you a fixed yearly amount). If retiring after 60, then a minimum of 40% must be annuitized and the balance can be withdrawn lump sum (tax-free).
- Tier 2: Only tier 1 account holders are allowed to open tier 2 accounts. Tier 2 accounts allow you to deposit and withdraw money as you wish. There are many types of investments that you can choose from (Equities, Corporate Bonds, Government Bonds etc.) also referred as (E, C & G) to help you to create an effective investment strategy.
- Voluntary contribution scheme to plan your savings and investment to take care of your finances and lifestyle after your retirement.
- The contributions of all account holders are collectively invested by Fund Managers of the Pension Fund Regulatory and Development Authority (PFRDA)
- You have to add a nominee at the time of account opening. 3 nominees can be added for Tier-1 and Tier-2 Accounts.
- There are two types of investment choices:
- Active: Where investor decides the asset classes for investment along with the allocation percentage for each type of asset class chosen
- Auto: Where the investment is done on behalf of the investor as per his age
Note: You can withdraw the corpus amount if it is less than INR 2 lakhs.
The doubt: Can NRI invest in National Pension Scheme?
It is a very common doubt amongst the NRIs, “Can NRI invest in NPS?” Well, the answer is YES!
You can open an NPS Account as an NRI and then, even if you return to India and become a Resident Indian again, you can continue to invest in your account and get the benefits.
NPS for NRI: How to open an NPS account online?
You don’t need to follow the hectic process of visiting the bank in India in order to open the NPS Account. Everything is online now. All you need to do is follow these simple steps:
- Visit NPS website and fill the “Online Subscriber Registration” Form.
- Select “Non-Resident Indian” option under “Choose Appropriate Options”
- Choose between a Repatriable (NRE) or Non-Repatriable Account (NRO)
- Enter Passport number, country of residence and generate OTP using Aadhar
- In case of Repatriable Account, your KYC will be done by the bank (one time charge of Rs.125/- plus taxes will be debited from your account)
- Select preferred address of communication, i.e. Overseas Address or Permanent Address (extra charges applicable for communication at overseas address)
- A Permanent Retirement Account Number (PRAN) will be allotted to you
- Get a print out of the form with e-sign or attach your photograph and signature
- Send the form within 90 days of the allocation of PRAN to the CRA (Central Recordkeeping Agency)
Send documents at: Central Recordkeeping Agency (eNPS), NSDL e-Governance Infrastructure Limited, 1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 400 013
NPS for NRI: Rules regarding contribution and withdrawal
- Though there is no minimum contribution requirement per year, it is recommended that a contribution of at least Rs.1000 per year is made to ensure reasonable pension after retirement.
- No limit for maximum contribution
- The annuity income will be taxable as per the income tax slab of the NRI
- The withdrawal can be deferred till the age of 70 and contributions can be made during this time
- Annuity purchase can be deferred up to 3 years
- Up to 25% can be withdrawn if you’re a subscriber (for at least 10 years) for the following: Higher Education, Marriage of children, Purchase or construction of residential flat/house, or Medical treatment of specific illness.
A quick look on types of investments and returns:
- Equities (Asset Class E): High Risk, High Returns
- Government Bonds (Asset Class G): Low Risk, Low Returns
- Corporate Bonds (Asset Class C): Medium Return for Credit Risk
Useful links for NRIs returning to India:
To get investment advisory from experts at SBNRI, click on the button below.
NPS for NRI: FAQs
Yes, National Pension Scheme is one of the top investment opportunities in India for NRIs to plan a wonderful retirement
An NPS Account can be opened online through these simple steps:
1) Visit NPS website and fill the “Online Subscriber Registration” Form.
2) Select “Non-Resident Indian” option under “Choose Appropriate Options”
3) Choose between a Repatriable (NRE) or Non-Repatriable Account (NRO)
4) Enter Passport number, country of residence and generate OTP using Aadhar
5) In case of Repatriable Account, your KYC will be done by the bank (one time charge of Rs.125/- plus taxes will be debited from your account)
6) Select preferred address of communication, i.e. Overseas Address or Permanent Address (extra charges applicable for communication at overseas address)
7) A Permanent Retirement Account Number (PRAN) will be allotted to you
8) Get a print out of the form with e-sign or attach your photograph and signature
9) Send the form within 90 days of the allocation of PRAN to the CRA (Central Recordkeeping Agency)
The National Pension Scheme (NPS) is one of the top investment opportunities for NRIs in India that provides pension in form of an annuity post retirement.
When it comes to returns, NPS seems a better choice than PPF. In any retirement portfolio whether it is National Pension System or Public Provident Fund both have their own place and associated benefits. PPF is all about the safety cushion regarding your investments with solid returns while NPS offers a double benefit of capital safety and appreciation of investments.
Yes NRIs can invest in Tier 2 NPS. They can do so as long as they are Indian Citizens. Change in citizenship will make them ineligible to invest in NPS.