NRI Investment in NPS

NRIs can invest in NPS retirement pension schemes in India. Know the complete process of how to open NPS account, what are the documents required, how to invest in NPS, and whether investment in NPS tax-free for NRIs.

Retirement planning is an important aspect of financial planning to be financially independent post-retirement. NPS or National Pension Scheme comes out as the best investment avenue to create a retirement corpus but the question is how?

Let’s first understand what NPS is, in detail:

National Pension Scheme

NPS is the Indian government-backed retirement scheme particularly designed to create a corpus for your retirement.

Any individual can voluntarily contribute money to the NPS account at regular intervals till maturity. Post-retirement or after maturity, a fixed percentage of the retirement corpus can be withdrawn as lumpsum and the remaining balance can be withdrawn in the form of fixed monthly pensions. In this way, NPS provides a regular source of income as guaranteed pension payment after retirement.

NPS is a rewarding investment option to fulfill your post-retirement need. It provides market-linked returns to help investors create an inflation-adjusted retirement corpus to meet their financial needs.

PFRDA (Pension Fund Regulatory and Development Authority) is the regulatory authority of NPS. PFRDA appoints CRA (Central Record Keeping Agencies), NPS fund managers, and also has right to authorize banks to act as Point of Presence (PoP) to allow Indian citizens (Resident and non-residents) to invest in NPS.

Types of NPS

There are two types of NPS, an Indian citizen can invest in Tier I and Tier II. Here are the details:

1. Tier I NPS

It is a mandatory or default NPS account. A citizen who wants to invest in NPS opens a Tier I NPS account. The minimum NPS contribution in the Tier I account is Rs 500 per month. All the contributions to it get locked till the age of 60 years. Post-retirement, the NPS account holder can withdraw a maximum of 60% of the total corpus as a lump sum and the remaining 40% balance is withdrawal through a monthly annuity.

2. Tier II NPS

It is an add-on or optional NPS account. An investor can open a Tier II NPS account voluntarily with a minimum contribution of Rs 1000 per month. You must have a Tier I account to open a Tier II NPS account. The amount deposited to this account is redeemable after 10 years from the account opening date.

Are NRIs allowed to invest in NPS?

Yes, any Indian citizen whether a resident or non-resident can subscribe to the NPS scheme.

The government of India (GoI) has permitted eligible NRIs to invest in NPS. To invest in NPS, all you need to do is open an NPS account in India and contribute money every year into your NPS account till maturity. And thereafter, the scheme provides you a regular pension income every month to meet your financial requirements.

Who is Eligible NRI to invest in NPS

There are certain eligibility criteria for non-residents including OCI (Overseas Citizen of India) to subscribe to an NPS scheme. Any NRI who meets the below conditions is allowed to open an NPS account in India:

• NRI must be aged between18 to 70. Earlier, the age limit to open NPS account was 18 to 60 years.
• NRIs are allowed to open only Tier I NPS account.
• As an NRI, you must have a valid PAN card number.
• You must have a valid NRI bank account in India. As an NRI, you can open either an NRE (Non-Repatriable External) or Non-Repatriable Ordinary (NRO) account.
• NRI must comply with the stipulated KYC norms.

Note: PIO (Person of Indian Origin) is not allowed to invest in NPS.

NRI should not have an existing NPS account.

Where does NPS money invested?

All deposits invested in NPS schemes can be invested by pension fund managers in 3 types of asset classes including equity (E), corporate debt (C), government bond (G), and alternative investment fund (A). Every asset class has different risk-return profile like equity is recommended for risk takers whereas corporate debt and government debt are debt instruments therefore ideal for conservative investors.

NPS also provides investors with the flexibility to decide how much allocation they want in different asset classes.

NPS Pension Fund Managers

Putting it simply, pension fund managers receive NPS subscriber’s fund from trustee banks and invest in different asset classes by complying with the prescribed guidelines.

• Aditya Birla Sun Life Pension Management
• HDFC Pension Management
• ICICI Prudential Pension Fund Management
• Kotak Mahindra Pension Fund
• LIC Pension Fund
• SBI Pension Fund
• UTI Retirement Solutions
• Axis Pension Fund Management
• TATA Pension Management
• Max Life Pension Fund Management

How to open NRI NPS account in India?

A non-resident Indian who has a registered mobile number with aadhar card can open an NPS account following below steps:

1. Visit to the eNPS portal of NSDL, Kfintech, or CAMS.
2. Registration: provide basic details like name, PAN number, birth date, email id, and mobile number to complete registration.
3. Enter required details like NRI bank account details (NRE or NRO), passport, country of residence, etc.
4. Upload scanned copies of a complete set of documents (see below).
5. Select the NPS fund manager and the mode of investment whether Auto or Active as per your choice. In active mode, NRI can decide the asset allocation percentage to different asset classes (equity, government securities, corporate bonds, etc.) within the prescribed limit. In Auto mode, you just have to specify your risk appetite and the allocations will be decided automatically.
6. Pay the minimum NPS subscription amount of Rs 500 through the linked NRE or NRO account.
7. Once your application is authenticated, PRAN (Permanent Retirement Account Number) will be generated.
8. E-sign the NPS form using Aadhar OTP or download and print out the NPS form and then sign and courier it to the CRA within 90 days.

Open NRI NPS account Online with Banks

Certain banks (ICICI, HDFC, SBI, etc.) act a Point of Presence (PoP) that allows NRIs to open an NPS account online in a paperless manner:

1. Enroll for NPS online with your bank’s net banking portal.
2. Choose anyone CRA (Kfintech, CAMS, or NSDL).
3. Fill in mandatory details and select residential status as “NRI” to complete the NPS registration process.
4. Enter PAN and Aadhar details.
5. Verify KYC: Submit KYC documents, if you already have a bank account then the bank will automatically fetch your KYC information from their database.
6. Make an initial contribution of at least Rs 500 to your NPS account through net banking or payment gateway.
7. After successful payment, you will receive a 12-digit PRAN number. A welcome kit also will be sent to your registered email address with a PRAN number and password.
8. Complete the e-sign process using Aadhar-based OTP.
9. Now your NPS account is set up!

NPS Account Opening Documents Required for NRI

An NRI intend to invest in the NPS retirement savings schemes must require the below set of documents for KYC compliance.

• Recent passport size photograph
• A copy of the PAN Card
• A copy of the passport
• A copy of Indian address proof
• NRE or NRO bank account proof
• A duly filled NPS subscriber registration form

NRI Contribution to NPS Scheme

Once an NRI has opened NPS account, he/she has to contribute it to every year till he/she attains the retirement age of 60 years. All the money invested in the NPS account by NRI is accumulated till the period of maturity. As an NRI, you can contribute your choice of amount to the NPS scheme.

Here are important points about how can an NRI contribute to the NPS retirement schemes:

• NRI can fund NPS account by mapping either NRE or NRO bank accounts. To invest on a repatriation basis, NRI should link NRE account while an NRO account allows non-residents to contribute on a non-repatriation basis.
• The minimum contribution to the NPS account is Rs 500 per month.
• In a single transaction, at least Rs 500 must be deposited into the NPS account for NRI.
• There is no limit on the number of contributions made to NPS account every year.
• Minimum yearly contribution to NRI Tier I NPS account is Rs 1000.
• There is no upper cap limit on contribution to the NPS account for NRI.

NRI NPS Investment Withdrawal Rules

NPS account holders cannot redeem money from their NPS account before attaining the age of 60 years. Thus, withdrawal is only permitted after retirement. Here are the rules on how to withdraw NPS deposits:

On Retirement or Superannuation (after completing 60 years)

• One can withdraw accumulated retirement corpus from the NPS scheme after turning 60 years.
• NRI NPS subscribers after reaching 60 years can withdraw 60% as lumpsum while for the remaining 40%, an annuity plan is to be purchased to get a fixed regular income every month.
• If the total accumulated retirement corpus is upto Rs 5 lakh, an NRI can withdraw 100% amount as lump sum without purchasing an annuity plan. All these payment is also tax-free.
• If the accumulated amount in an NPS account is less than INR 2 lakhs at the time of retirement, one can redeem the entire amount. 

Pre-mature Exit (withdrawal before 60 years)

Pre-mature exit or voluntary exit (before retirement) from NPS is also permitted pertaining to certain conditions applied such as:

• If you have been an NPS subscriber for at least 5 years or above, you can exit from NPS scheme before retirement.
• You can withdraw 20% of NPS corpus as lumpsum money, and can buy an annuity plan for rest 80% of the corpus amount to receive monthly income.
• If the total corpus built in your NPS account is upto Rs 2.5 lakh, NRI subscribers can opt for full 100% lumpsum withdrawal.

Note: In the event of death, the legal nominee or heir of a private sector employee as an NPS account holder is authorized to withdraw 100% accumulated NPS corpus.

NPS rules for Partial withdrawal

NPS allows pre-mature partial withdrawal in some special circumstances under applicable rules.

• NRI must be an NPS subscriber for at least 3 years.
• Partial withdrawal is allowed for specific purposes: children marriage, children education, own a house property, severe medical conditions, or life-threatening disease, serious accidents or chronic illness covered under PFRDA.
• Maximum 25% of the NPS contribution in Tier I account is available for partial withdrawal.
• A maximum of 3 partial withdrawals within a gap of 5 years are allowed during the NPS tenure.

For example, if a NRI has invested Rs 2,00,000 in his NPS account in the last 4 years. Since the holder has completed 3 years, NRI is eligible for partial withdrawal of 25% of the corpus money.

In that case, the NPS account holder can withdraw or redeem Rs 50,000 to treat critical illness or above specified reasons. The remaining 75% or Rs 150,000 shall be payable in annuity or regular monthly pension after retirement.

Tax-benefits on NPS investment for NRIs

As a NRI, you may want to invest in tax-free investment instruments. Then, NPS is an ideal instrument as investment in NPS provides tax incentives to you.

NRI can invest in NPS to avail tax-saving benefits. Here are the tax benefits available on NRI NPS investment:

• Investment in NPS upto Rs 1.5 lakh is considered as tax-deductible expense under section 80 CCD(1). Thus, an NRI can claim tax deduction of upto Rs 1,50,000 from their taxable income under section 80C and thereby reduces their tax payment.
• An additional exclusive tax incentive of upto Rs 50,000 u/s 80CCD (1B) over the above limit of Rs 1.5 lakh is offered.
• Upon superannuation or maturity after 60 years, 60% lumpsum payment is also tax-free.