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Kriti Arora
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Kriti Arora

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Kriti is a content marketing and branding expert with more than 13 years of rich experience across BFSI and Telecom industries. She is currently leading Digital Creative Strategy for Axis Max Life Insurance.

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Vaibhav Kumar
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Vaibhav Kumar

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With over 15 years in life insurance, Vaibhav is a recognized products and digital leader for driving innovation at Axis Max Life. He's played a pivotal role in developing new business lines and implementing successful D2C strategies.

What is the National Pension Scheme for NRIs?

National Pension System (NPS) is a Government of India-recognised retirement savings scheme that is overseen by the PFRDA (Pension Fund Regulatory and Development Authority). This is primarily designed as a long-term investment that provides financial security through regular income during retirement. Currently both resident Indians and non-resident Indians are allowed to invest in NPS subject to applicable eligibility criteria and completion of KYC norms. Here is a brief overview of the key features related to NPS for NRIs:

Criteria Details
Eligible Age Range Applicant must be aged between 18 to 60 years
Source of Contribution NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account is mandatory
Returns Market-linked returns
Tax Benefits Up to Rs. 2 lakh annually under Section 80C and Section 80CCD (1B) for investments made in NPS Tier 1 account, if one has opted for the old tax regime.
Minimum Contribution Minimum Rs. 500 at the time of account opening. Subsequently Rs. 500 per contribution and Rs. 6,000 per annum to keep your account active.
Maximum Contribution No upper limit

Eligibility Criteria

To invest in NPS as an NRI, you have to meet the following eligibility requirements:

  • You have to be between the age of 18 to 60 years.
  • You must comply with the Know Your Customer (KYC) norms.
  • Among non-residents, only NRI and OCI (Overseas Citizen of India) are eligible for NPS. PIO (Person of Indian Origin) are not currently eligible for NPS.
  • Valid PAN card is mandatory and contributions are only allowed through NRE and NRO account held with a bank in India
  • As an NRI, you are only open a NPS Tier 1 account, currently NPS Tier 2 Account cannot be opened by non-residents.

The above eligibility criteria are illustrative, not exhaustive and subject to periodic change. It is also notable that NPS account for NRIs can only be opened with specific empanelled banks in India and this list is available on the NPS Trust website.

Documents Required to Open an NPS Account for NRI

In order to open an NPS account, non-resident Indians need to submit the following documents:

1- Address proof (copy of any one):

  • A valid passport issued by the government of India
  • Ration card with residential address and photograph
  • Bank pass book with photograph and residential address
  • Voters identity card with photograph and residential address
  • Aadhaar card/ letter issued by the UIDAI.
  • Job cards issued by NREGA, duly signed by an officer of the state government.
  • Latest electricity/ piped gas /water bill showing the complete address (less than 2 months old)
  • Latest telephone bill in the name of the subscriber.
  • Latest house tax receipt (not more than 1-year old)

2- Bank Information and Other Documents

  • Cancelled cheque
  • A copy of the bank passbook (NRE/NRO Account only)
  • Bank certificate
  • PAN card copy
  • Filled Out Application form

The above list of documents required for NRI NPS account is illustrative and subject to periodic change. Applicants may be required to submit additional documents as per applicable regulations.

Key Benefits of Investing in NPS for NRI

The NPS scheme for NRI, ensures a disciplined approach to retirement-oriented long term investment that allows you to benefit from market-linked instruments. Below are some of the top benefits of an NPS account for NRIs:

  • The National Pension System for NRIs allows customisation of portfolio, by choosing from multiple asset classes like equity, corporate bonds, Government bonds and alternative investment funds.
  • Since there is no maximum limit on contributions, NRIs have complete flexibility to make voluntary contributions as per their own financial goals and capacity.
  • While it is a long-term savings scheme, it allows partial NPS withdrawals and exit options subject to key terms and conditions. This ensures that NRIs have access to funds during emergencies.
  • Professional funds management of NPS can help NRIs get inflation beating returns.
  • NPS has been providing attractive returns over the years, which makes this scheme a lucrative investment option.
  • Investments in NPS are eligible for tax benefits under Section 80CCD and its key subsections of the Income Tax Act, 1961. However only NPS Tier 1 account investments are eligible for these benefits and a majority of the benefits are available to individuals opting for the old tax regime.

NPS Account for NRI: How to Open an Account?

NRIs can open their National Pension Scheme (NPS) account either online or offline. For online registration, you can visit the eNPS official website, and for offline registration, you can visit the authorized NPS POP (Point of Presence) such as empanelled banks. Go through the steps below for details of the account opening process.

Method 1: Online

The online system is the fastest way to join NPS. NRIs can follow these steps to open an NPS account online through the KFintech, CAMS NPS or Protean (erstwhile NSDL) websites:

  • First and foremost, visit the website of one of the eNPS portals mentioned above and fill up the mandatory online form.
  • Next upload copies of key documents such as PAN, passport, Aadhaar,etc. to complete the KYC for a new NPS account.
  • The generation of NPS permanent retirement account number (PRAN) is subject to KYC verification. This verification process is done by the empanelled banker with whom the NRI has an account. Make sure the name and address provided in the account opening form exactly matches the banker's record.
  • Next, scan and upload your photograph and signature when prompted.
  • Make the initial online payment (minimum amount of Rs. 500) via NRO/NRE account.
  • After that, the subscriber will have the option to authenticate the form via eSign process or Aadhaar OTP authentication.

Method 2: Offline

If you prefer to open an NPS account offline, the registration form can be collected from POP by visiting in person. Here are the steps you need to follow:

  • Firstly, visit the nearest Point of Presence – Service Provider (POP-SP) such as the branch of an empanel bank.
  • Fill out the application form with all the required details.
  • Next, fulfil the KYC norms by submitting all the necessary documents such as PAN card, passport, photograph, cancelled cheque, and address proof.
  • The empaneled bank is required to confirm the details of NRE/NRO account that will be used for NPS investments.
  • Next, make at least the minimum payment Rs. 500 to open the tier 1 NPS account for NRIs.
  • Finally, review your application form and submit it.
  • Once the PRAN is generated, you will receive your PRAN (Permanent Retirement Account Number) kit via post within 10 days.

Investment Options in NPS Scheme for NRIs

As a NRI, you can customise your National Pension Scheme (NPS) investments across various asset classes with the following strategies:

1. Auto Choice: Lifecycle Fund

NPS subscribers who do not have the necessary knowledge related to NPS can choose this option. In this context, the fund investments are automatically adjusted based on the investor’s age. Typically, with age as risk tolerance of the individual decreases, the exposure to equities is decreased and allocation towards potentially low risk debt instruments such as government securities and corporate bonds is increased.

2. Active Choice: Individual Funds

In this type of investment, a subscriber takes an active part in decisions related to asset allocation, such as, which asset class to invest in, how much to invest, and so on. The supplier has the authority to select multiple assets or a single asset, depending on their risk appetite and financial goals. There are a total of four asset classes (equity, corporate debt, government bonds, and alternative investment funds) to choose from. This allows customisation of NRI NPS account investments based on financial goals and risk appetite of the investor.

Withdrawal Rules for NPS for NRI

If you want to exit NPS, you have to submit a withdrawal application form and all the supporting documents to the concerned POP-SP. The withdrawal rules of NPS for NRIs are provided below, which you must know before proceeding:

  • NPS account of NRIs allows partial, premature, and post-maturity withdrawal of corpus under specific rules.
  • After turning 60, the subscriber has the option to withdraw up to 60% of the corpus; the remaining 40% must be used to buy an annuity plan.
  • On early retirement, NRI NPS account allows withdrawal of only 20% of the retirement corpus, while the remaining 80% must go toward annuity purchase.
  • In the event of the subscriber’s death, the nominee can withdraw the entire NPS corpus as a lump sum.

As you can see, the withdrawal norms of NPS for NRIs vary by life stage and ensure long-term financial stability.

How NRIs Can Manage Their NPS Portfolio?

By choosing the right Pension Fund Manager (PFM) and selecting the right investment mode, NRIs can manage an NPS portfolio effortlessly. However, there are some key things to remember in this regard:

  • 1. Having an operational NRE/ NRO account to transfer NPS funds is mandatory
  • 2. No eligibility for OCIs (Overseas Citizens of India) and PIOs (Persons of Indian Origin).
  • 3. A minimum yearly contribution of ₹6000 has to be made to keep the NPS Tier I account active.

Common Myths About NPS for NRIs

Here are some common myths about the NPS scheme for NRIs:

1. Only Central and State Government Employees Are Eligible for NPS

This was true at the initial launch of NPS. However, since 2009, after launch of the All Citizens Model of NPS, resident Indians from various walks of life have been eligible to open an NPS account. Apart from residents, NRIs to can open an NPS account and include this instrument in their overall retirement planning.

2. NPS Contributions Are Capped at ₹1.5 Lakh Annually

This is a myth since there is no upper limit for NPS contributions. There is a capped amount only when it comes to tax deductions.

3. NPS Returns Are Low

In reality, NPS returns are market-linked so dependent on both the performance of different asset classes and the asset allocation chosen by the investor. However, due to presence of equities in the NPS portfolio, the long-term returns of the scheme are expected to exceed the returns offered by many fixed returns investments.

Conclusion: Is NPS a Good Investment for NRIS?

The National Pension Scheme for NRI is considered one of the most powerful financial tools for retirement planning, if a NRI wants to invest in India. It provides market-linked growth and after conversion into annuities, offers a steady income stream during retirement.

Frequently Asked Questions

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What happens to my NPS account after I become an NRI?

What is premature withdrawal from NPS for an NRI?

What are the tax benefits of NPS for NRIs?

What documents are required for NRIs to open a NPS account?

Can NRIs claim tax benefits on NPS in both India and their resident country?

Can NRIs switch between investment options in NPS?

ARN: une25/Bg/22K

Sources:

https://www.cnbctv18.com/personal-finance/nps-national-pension-system-investments-retirement-planning-5-myths-19519261.htm

https://mea.gov.in/Portal/CountryNews/4929_FAQs_on_NPA_for_NRIs.pdf

https://www.indembassybern.gov.in/docs/20150821151542163.pdf

https://www.forbes.com/advisor/in/retirement/nps-tax-benefit/

https://npscra.nsdl.co.in/download/Investment-options-under-NPS.pdf

https://www.cgihamburg.gov.in/pdf/National_Pension_Scheme_for_Non_Resident_Indians.pdf

https://www.icicibank.com/blogs/nps/nps-withdrawal-rules

https://www.mea.gov.in/images/pdf/nps-for-nri.pdf

https://www.livemint.com/money/personal-finance/national-pension-system-five-reasons-why-nris-should-consider-nps-as-a-long-term-investment-option-11702883902919.html

https://www.npscra.nsdl.co.in/download/government-sector/central-government/forms/Subscriber%20Registration%20Form_NRI-OCI.pdf

https://npstrust.org.in/about-nps

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