With NPS, NRIs and OCIs can choose from various pension investment options tailored to your preferences and risk appetite.
The benefits of the National Pension System (NPS) are not restricted to resident Indians only. Non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) can also open NPS accounts and invest their money into the growing Indian capital markets while working abroad. This article explains all the important details NRIs and OCIs should know to invest in NPS, according to experts.
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Why should NRIs and OCIs invest in NPS?
Senthil G, Chief Business Development Officer, KFintech, says NPS is a retirement savings scheme introduced by the Indian Government and regulated by the PFRDA. It empowers individuals to contribute to their own pension accounts, fostering a sense of control and financial security.
“With NPS, you can choose from various pension investment options tailored to your preferences and risk appetite. This allows you to shape your retirement savings strategy in a way that aligns with your unique goals and aspirations,” he says.
How is it different from domestic investors?
From an operational and tax perspective, foreign investors (NRI/OCI) in NPS experience certain differences from domestic investors. Senthil G says NRIs need to meet the minimum contribution of Rs. 500 required thereafter, a minimum investment of Rs 6000 would be needed every year in order to keep the account active, which for domestic subscribers is Rs 1000. However, there is no upper limit for NRIs to invest in NPS. The accumulated corpus in NPS is repatriable for NRIs/OCIs, allowing funds to be transferred abroad, while domestic investors do not have this option.
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How to invest?
Kurian Jose, CEO of Tata Pension, says NRIs are permitted to open accounts with banks on a repatriable and non-repatriable basis. They can invest in NPS using their non-resident external (NRE) and non-resident ordinary (NRO) bank accounts.
As far as regulations go with respect to PFRDA, there are no separate regulations that distinguish the resident Indian from NRIs and OCIs, apart from currency exchange norms. Also, NRIs cannot invest in Tier 2 accounts of NPS.
How to contribute
NRIs have to contribute from their respective NRE/NRO accounts only and all the redemptions/withdrawals will get credited in the local currency (INR) in the NRO Account.
Tax Benefits
Kurian Jose says that the tax benefits will be the same as domestic subscribers. NRIs can get tax benefits from sections 80C and 80CCD1B of the Indian Income Tax Act.
“Foreign investors can claim tax deductions up to INR 1,50,000 as deductibles u/s 80C of the Income Tax (IT) Act. This amount is contingent on no other investments being declared under this section of the IT Act. They can further claim a tax deduction of INR 50, 000 u/s 80CCD 1(B) annually on their NPS investment,” says Senthil G.
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Age Limit and Documents Required
Any NRI of age between 18 to 70 can get a Permanent Retirement Account Number (PRAN) and thus start the NPS journey. Documents required would be his/her Aadhar number linked to mobile number, copy of signature, cancelled cheque or PAN details and his Passport.
Investment amount
NPS offers flexibility that suits your financial capability. The minimum contribution per transaction is Rs 500, and you must contribute a total of Rs 1000 or more annually. The best part? There’s no maximum limit on the amount you can invest, granting you the freedom to build your retirement corpus according to your desired financial milestones.
NRIs/OCIs can start their NPS investment with a minimum amount of Rs 500 to generate the PRAN Number.
Also, there is no capping on the upper limit.
Withdrawal on maturity
On maturity, NRIs will need to purchase mandatory annuities in India. Withdrawal for the 60% can be credited in INR in NRO which can be subsequently repatriated to any currency.
“Withdrawal rules differ for NRIs/OCIs, upon superannuation or maturity, NRIs can withdraw up to 60% of the corpus generated without any tax liability, whereas the remaining 40% of the corpus needs to be mandatorily invested in an annuity plan of an ASP based on investor’s choice and tax treatment of annuity payments depends on the DTAA of the country of residence,” says Senthil G.
Withdrawal before maturity
According to Senthil G, the Tier I NPS account does not allow easy withdrawals before maturity. However, an NRI can withdraw partially for specific financial needs like meeting education costs, paying for medical expenses, buying a house, etc. Partial withdrawals are allowed after three years of investment initially and after a gap of 5 years each. They can withdraw up to 25% of the invested amount at one time, and the maximum number of times that they can apply for partial withdrawal is 3 in a lifetime.
Kurian Jose further says that withdrawal proceeds for NRIs will get credited in local currency only in INR and in the NRO Account. The entire investment and withdrawal process can be done fully online for NRIs using Aadhaar OTP. Offline process is also available through Point of Presence (POP).
Is there any country-wise restriction for NRIs to invest in NPS?
Currently No. Currency exchange norms will be applicable.
Important points to keep in mind
Senthil G says that foreign investors, specifically NRIs, and OCIs, need to keep certain considerations in mind while investing in NPS:
- Firstly, they should meet the age requirement of being between 18 and 70 years old.
- They must have a valid bank account, which can be a Non-Resident External (NRE) account or a Non-Resident Ordinary (NRO) account.
- Compliance with Know Your Customer (KYC) norms is essential, along with possessing a valid Aadhaar or PAN card.
- NRIs and OCIs are only allowed to open Tier I accounts, and the option for a Tier II account is not available.
- It is important to note that if an NRI or OCI ceases to be a citizen of India, their NPS subscription will be discontinued.
