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NPS for NRI - How to open an account? (Eligibility and Benefits)

Investing in pension schemes is an important element of financial planning. Here is everything you need to know about National Pension Scheme for NRIs
6
min read
February 7, 2024
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Content overview:

Introduction to NPS for NRIs

The National Pension Scheme (NPS) is a voluntary, defined contribution retirement savings scheme available to all Indian citizens, including Non-Resident Indians (NRIs). It aims to provide adequate retirement income by encouraging systematic savings during an individual's working life.

Example: Consider Mr. Raj, an NRI living in the USA. He can invest in NPS to build a retirement corpus and also enjoy tax benefits under the Indian Income Tax Act. This can be particularly beneficial if he plans to return to India after retirement.

Benefits of NPS for NRIs

NPS offers several benefits to NRIs. These include:

  • Attractive Returns: NPS has been providing attractive returns over the years, making it a lucrative investment option.
  • Flexibility: NRIs have the flexibility to choose their own investment option and pension fund manager.
  • Portability: NPS provides seamless portability across jobs and locations.
  • Tax Benefits: Investments in NPS are eligible for tax benefits under the Indian Income Tax Act. NRIs can claim a tax deduction of up to INR 1.5 lakhs under Section 80C and an additional INR 50,000 under Section 80CCD(1B).

Opening an NPS Account as an NRI

NRIs can open an NPS account either online or offline. For online registration, they can use the eNPS platform. For offline registration, they can visit any of the authorised branches of the Point of Presence (PoP), fill the necessary forms, and submit the required documents.

Example: Mr. Raj can open an NPS account online through the eNPS platform using his Aadhaar or PAN card. He needs to fill the online application form, make the initial contribution, and complete the e-KYC process.

NPS for NRIs 

Understanding NPS Accounts for NRIs:

Tier-I NPS Account: Think of this as your mandatory retirement account. As an NRI, you must open a Tier-I account to start your NPS journey. The money you contribute to this account is locked until you retire at age 60, growing over time to provide a significant retirement fund. For example, if you start contributing ₹5000 a month at age 30, by the time you retire, you could have a substantial nest egg waiting for you.

Tier-II NPS Account: This is like a savings account with the benefits of a retirement account. It's optional and offers more flexibility. You can contribute any amount at any time and withdraw it whenever you need. It's perfect for saving for long-term goals that aren't as far off as retirement.

Investment Options in NPS for NRIs:

As an NRI, you have the same investment options in NPS as resident Indians. You can choose to invest your NPS contributions in a mix of equity (stocks), government securities (bonds), and corporate bonds. The mix you choose depends on your risk tolerance and financial goals. For instance, a younger investor might opt for a higher proportion of equity for potentially higher returns, while a near-retiree might prefer the stability of government securities.

Spotlight on Top NPS Schemes for NRIs:

HDFC Pension Fund: This scheme offers a balanced mix of equity and debt investments, with an equal allocation of 50% to each. Its low expense ratio of 0.05% ensures more of your money is invested rather than spent on fees.

ICICI Prudential Pension Fund: This scheme leans towards equity, with an allocation of 60%, offering the potential for higher returns. The remaining 40% is invested in debt securities. Its low expense ratio of 0.04% ensures cost-effective investing.

UTI Retirement Plus Fund: This scheme is ideal for risk-tolerant investors, with a high equity allocation of 70%. The remaining 30% is invested in debt securities. Its low expense ratio of 0.03% maximizes your potential returns.

Understanding NPS Contribution Limits for NRIs

There is no upper limit on the contribution to NPS. However, the minimum contribution is INR 6,000 per year. NRIs can make contributions to their NPS account through normal banking channels or through NRE/FCNR/NRO accounts.

Tax Benefits of NPS for NRIs

Investments in NPS are eligible for tax benefits under Section 80C and Section 80CCD(1B) of the Indian Income Tax Act. The total deduction under Section 80C and Section 80CCD(1B) is up to INR 2 lakhs.

Example: If Mr. Raj contributes INR 1.5 lakhs to NPS in a financial year, he can claim a tax deduction of INR 1.5 lakhs under Section 80C. If he contributes an additional INR 50,000, he can claim a further deduction of INR 50,000 under Section 80CCD(1B).

NPS vs Other Investment Options for NRIs

While NPS is a good investment option for retirement savings, NRIs also have other options like mutual funds, direct equity, real estate, and fixed deposits. The choice of investment should depend on the individual's financial goals, risk appetite, and investment horizon.

Example: If Mr. Raj is looking for a low-risk investment option, he might consider fixed deposits or debt mutual funds. If he is willing to take higher risk for potentially higher returns, he might consider equity mutual funds or direct equity.

Conclusion

NPS can be a good investment option for NRIs looking for long-term retirement savings with tax benefits. However, it's important to understand the rules, benefits, and limitations before investing in NPS. It's always advisable to consult with a financial advisor to make an informed investment decision.

FAQs

Q1.Can NRIs invest in NPS?

Yes, Non-Resident Indians (NRIs) can invest in the National Pension Scheme (NPS).

Q2.Can NRIs open an NPS account?

Yes, NRIs can open an NPS account either online through the eNPS platform or offline by visiting any of the authorized branches of the Point of Presence (PoP).

Q3.Is NPS a good investment option for NRIs?

NPS can be a good investment option for NRIs looking for long-term retirement savings with tax benefits. However, it's important to understand the rules, benefits, and limitations before investing in NPS.

Q4.How can NRIs open an NPS account?

NRIs can open an NPS account either online through the eNPS platform or offline by visiting any of the authorized branches of the Point of Presence (PoP).

Q5.Should NRIs invest in NPS?

The decision to invest in NPS should be based on individual financial goals, risk appetite, and retirement planning needs. NPS offers a systematic platform for retirement savings and provides tax benefits.

Q6.What happens to the NPS account when a person becomes an NRI?

If a person becomes an NRI after opening an NPS account, the account remains active. They can continue making contributions to the account.

Q7.What is the contribution limit for NRIs to NPS?

There is no upper limit on the contribution to NPS. However, the minimum contribution is INR 6,000 per year.

Q8.Can NRIs contribute to NPS from NRE/FCNR/NRO accounts?

Yes, NRIs can make contributions to their NPS account through normal banking channels or through NRE/FCNR/NRO accounts.

Q9.Are NPS contributions eligible for tax benefits for NRIs?

Yes, investments in NPS are eligible for tax benefits under Section 80C and Section 80CCD(1B) of the Indian Income Tax Act.

Q10.What are the tax benefits of NPS for NRIs?

NRIs can claim a tax deduction of up to INR 1.5 lakhs under Section 80C and an additional INR 50,000 under Section 80CCD(1B).

Q11.How are NPS withdrawals taxed for NRIs?

The taxation of NPS withdrawals for NRIs is the same as for resident Indians. At the time of retirement, 60% of the corpus can be withdrawn tax-free, and the remaining 40% must be used to purchase an annuity, which is taxable as per the individual's tax slab.

Q12.Can NRIs repatriate the maturity proceeds from NPS?

Yes, NRIs can repatriate the maturity proceeds from NPS as per the FEMA guidelines.

Q13.Can NRIs nominate beneficiaries for their NPS account?

Yes, NRIs can nominate beneficiaries for their NPS account. In the event of the NRI's death, the NPS corpus will be paid to the nominee.

Q14.Can NRIs switch their pension fund manager?

Yes, NRIs have the flexibility to switch their pension fund manager once in a financial year.

Q15.What happens to the NPS account if the NRI returns to India?

If the NRI returns to India, the NPS account continues to be operational. They can continue making contributions to the account.

Q16.Can NRIs invest in both Tier I and Tier II NPS accounts?

Yes, NRIs can invest in both Tier I and Tier II NPS accounts. However, the tax benefits under Section 80C and Section 80CCD(1B) are only applicable to contributions made to the Tier I account.

Q17.What is the minimum annual contribution for NPS for NRIs?

The minimum annual contribution for NPS for NRIs is INR 6,000.

Q18.Can NRIs take a loan against their NPS corpus?

No, NRIs cannot take a loan against their NPS corpus. The NPS corpus is meant for retirement savings and cannot be pledged for taking loans.

Q19.Can NRIs withdraw their NPS corpus before retirement?

Yes, NRIs can withdraw up to 25% of their NPS corpus before retirement for specific purposes like children's education or buying a house. However, this is allowed only after 10 years of being in the scheme and is subject to certain conditions.

Q20.What are the charges for maintaining an NPS account for NRIs?

The charges for maintaining an NPS account for NRIs are the same as for resident Indians. These include account opening charges, annual maintenance charges, and transaction charges.

Tejas is an accomplished Chartered Accountant with a passion for finance. With a decade's worth of extensive experience in the banking and credit domain, he has a deep understanding of the financial landscape across consulting and start-ups. In his time away from work, Tejas enjoys sharing his knowledge and helping others understand the intricacies of this complex domain.

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