National Pension Scheme (NPS) for NRI

Have you ever thought about securing your financial future while living abroad? Well, if you’re an NRI, the National Pension Scheme (NPS) in India might just be what you need. Let us dive into what makes NPS attractive for NRIs, how it works, and why it might be the right choice for you.

What is NPS?

The National Pension System (NPS) is a government-sponsored pension scheme in India, designed to provide financial security during retirement. It was launched in 2004 for government employees and opened to all citizens in 2009. The primary goal of NPS is to encourage people to save for their retirement years systematically.

Features and Benefits of NPS account for NRI

Features of NPS account for NRI

The investment portfolio is very flexible and lets investors decide how to allocate their funds across different options. You can invest in various asset classes, such as equity, corporate bonds, and government securities. Depending on your risk appetite, up to 85% of your funds can go into equity, corporate bonds, or government securities. There are two investment options:

• Active Choice: You decide which asset classes to invest in and the allocation ratios.
• Auto Choice: Investments are made on your behalf based on your age.

Benefits of NPS account for NRI

Whether you’re living abroad or planning to return to India, an NPS account offers numerous advantages tailored to your needs. Here’s a look at the key benefits of holding an NPS account as an NRI.

Low cost

Open an NPS account with a minimum initial contribution of ₹500 for Tier I (mandatory) and ₹1000 for Tier II (optional). There’s no limit on the number of contributions per year, and fund management charges are very low, between 0.01% - 0.1% annually.

High returns

NPS offers market-linked returns that can outpace inflation and help build a substantial corpus over time. Historically, annual returns have averaged around 9% to 15%, depending on asset allocation and fund manager performance.

Eligibility Criteria for the National Pension Scheme for NRI

If you’re an NRI looking to invest in this Indian government pension scheme, here are the eligibility criteria you need to meet:

• Age: You should be between 18 and 60 years old.
• Bank Account: You need a valid bank account in India, either a Non-Resident External (NRE) account (repatriable) or a Non-Resident Ordinary (NRO) account (non- repatriable).
• KYC Norms: You must comply with the KYC norms set by the PFRDA (Pension Fund Regulatory and Development Authority).
• PAN Card: You should have a PAN card with a valid PAN number.

NPS NRI Registration

Designed to help individuals build a retirement corpus with flexibility and low costs, NPS is a viable option for NRIs. Know how to register for an NPS account as an NRI, covering both online and offline methods.

Online

• Visit the official eNPS website and click on ‘Registration.’
• Select ‘Non-Resident of India’ as your status and choose between ‘Repatriable’ or ‘Non-repatriable’ for the account type.
• Opt for ‘Permanent Account Number’ for registration, then enter your PAN number, passport number, bank details, and country of residence.
• Fill in all necessary details and upload scanned copies of your photograph, signature, PAN card, passport, and canceled cheque.
• Make an online payment of at least ₹500 for a Tier I account or ₹1000 for a Tier II account using net banking or a debit card.
• Print, sign the completed form, and send it to the Central Recordkeeping Agency (CRA) within 90 days to avoid your account being frozen.

Offline

• Go to any bank branch registered as a Point of Presence (POP) under the NPS scheme and get an NRI NPS application form.
• Complete the form with the required details and attach copies of your photograph, address proof, signature, PAN card, passport, and canceled cheque.
• Submit the form 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.

Applicable Charges for NPS Registration

The national pension scheme for NRIs has emerged as a popular retirement savings scheme in India, offering attractive returns and significant tax benefits. If you’re considering enrolling in NPS, it’s important to be aware of the various charges associated with registration and account maintenance.

What are the Investment Options and Withdrawal Rules for NPS for NRI?

You can invest in Tier I and Tier II accounts under this government scheme for NRIs in India. Tier I is a mandatory retirement savings account with tax benefits, while Tier II is an optional general investment account with no tax benefits but greater liquidity. Here are the details on investment options:

Investment Options

Being a non-resident Indian, you have two investment choices for your NPS account: Active Choice and Auto Choice.

Active Choice

You can decide your own asset allocation among four asset classes: equity, corporate bonds, government securities, and alternative investments. There is a cap of 75% on equity exposure until age 50, which reduces by 2.5% each year until it reaches 50% at age 60.

Auto Choice:

This option automatically allocates your assets based on age and risk profile. There are three life cycle funds available:

• Aggressive (LC-75): Starts with 75% equity exposure, reducing to 15% by age 55.
• Moderate (LC-50): Starts with 50% equity exposure, reducing to 10% by age 55.
• Conservative (LC-25): Starts with 25% equity exposure, reducing to 5% by age 55.

You can switch your fund manager or investment option at no extra cost once a year.

Withdrawal Rules

Generally, you can withdraw from your NPS account after age 60. Here are the conditions:

Upon Attaining Age 60:

• Withdraw up to 60% of your corpus as a lump sum, which is tax-free.
• Use the remaining 40% to buy an annuity from a PFRDA-approved service provider to receive a regular income for life.
• If your corpus is less than ₹2 lakh, you can withdraw the entire amount without buying an annuity.

Before Age 60:

• You can exit the NPS scheme after 10 years of contributions.
• Withdraw 20% as a lump sum; the remaining 80% must be used to purchase an annuity.
• If your corpus is less than ₹1 lakh, you can withdraw the entire amount without buying an annuity.

Tax Benefits of Investing in NPS for NRI

NRIs invest in the NPS scheme to take advantage of tax benefits that help lower their tax liability. Here are the main tax benefits offered by the NRI pension scheme:

The NPS scheme not only helps NRIs save on taxes but also allows them to build up their retirement corpus. Upon maturity, 40% of the corpus can be used to provide a lifelong pension, with various payment modes available.

Conclusion

For NRIs, NPS offers a structured way to save for retirement while enjoying significant tax benefits. The flexibility to choose your investment strategy, the low-cost structure, and the option to manage your account online from anywhere in the world make it an attractive option. Whether you’re looking to build a corpus for your future or planning for a smooth return to India, NPS provides a secure and beneficial avenue for retirement planning.

FAQs on National Pension Scheme for NRIs