National Pension System (NPS) for NRIs: All to need to know

The National Pension Scheme is a retirement savings scheme launched by the Indian Government in 2004. Under the NPS system, subscribers are allotted a Permanent Retirement Account Number (PRAN) which is unique to every subscriber....[…]

It’s a cost-effective, tax-efficient scheme that enables the subscriber to operate a flexible and portable retirement savings account that operates on the basis of Defined Contribution. Ultimately, the benefits that the subscribers receive depends on the volume of contributions, returns on these contributions, and the total period for which contributions were made.

Since October 2015, Non-resident Indians have been allowed to open accounts under the NPS. By opening an NPS account, NRIs can create a pension corpus in India.

Non-resident Indians can also open these accounts and make full use of the benefits they carry.

Eligibility criteria for NRIs who wish to open NPS account

NRIs who wish to open NPS accounts must first check whether they meet the following eligibility criteria:

• Age: Between 18 and 60 years old.
• Must comply with KYC norms.
• PIOs and OCIs are not eligible.

How NPS works

• Under the NPS, an individual’s savings is pooled in a pension fund.
• These funds are invested by Pension Fund Regulatory and Development Authority (PFRDA) regulated professional fund managers as per the approved investment guidelines in the diversified portfolios comprising of government bonds, bills, corporate debentures and shares.
• These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.

At the time of a normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme either to purchase a life annuity from a PFRDA empanelled life insurance company or withdraw a part of the accumulated pension wealth as lump-sum, if they choose to do so.

Features and benefits of NPS account for NRI

• Investment portfolio is highly diversified and affords the investor the flexibility to choose in what ratio funds should be allocated across investment options.
• Investments can be made in a variety of asset classes like Equity, Corporate Bonds, and Government Securities.
• Up to 85% of the funds can be diverted to Equity, or Corporate Bonds, or Government Securities – depending on the risk appetite of the investor.
• There are two investment options:
  • Active Choice: Where the NRI investor decides the asset classes and ratios of investment.
  • Auto Choice: Where the investment will be done on behalf of the NRI investor, based on his or her age.
• Every subscriber is given a Permanent Retirement Account Number (PRAN) Card with a unique 12-digit number.
• There are two available sub-accounts under the NPS account scheme:
  • Tier – I accounts: Withdrawals are allowed for up to 25% of the borrowers own contribution. This is subject to the Withdrawal and Exit Regulations.
  • Tier – II accounts: This account is allowed as an add-on to Tier – I accounts, as a savings facility. Withdrawals are permitted as and when the investor wishes from Tier – II accounts.
• NPS accounts can be operated from any location in the country.

Who can subscribe

• All citizens age from 18 years to 60 years of age, including NRIs.
• PIOs/ OCIs are not eligible.
• The applicant should have an NRE/NRO account complying with KYC norms.
• The account needs to be opened by the individual NRI as power of attorney is not allowed.

How to register and apply for NPS

In order to apply for NPS, the NRI applicant must:

• Acquire an NRI NPS Application Form from PFRDA, NPS Trust Website, or at a participating bank.
• Duly fill up the form with mandatory information and necessary attachments.
• Submit the form to the NRI Bank Branch in India.
• Once the NRE / NRO account particulars have been verified, the bank will forward the application to the Central Recordkeeping Agency (CRA) directly.
• Deposit the initial deposit cheque.
• The application will be digitized.
• PRAN will be generated by the CRA.
• An email or SMS will be sent to the NRI applicant intimating him or her about the PRAN number.
• All subsequent transactions can be made online.

How to contribute to NPS account

The contributions made into the NPS account by the NRIs can be from either NRE or NRO accounts subject to normal foreign exchange conversion norms.

• Minimum Contribution at the time of account opening – Rs. 500
• Minimum amount per contribution – Rs. 500
• Minimum contribution – Rs. 6000 per annum

How to check the status of NPS

After submission of documents, you can check the status by accessing https://cra-nsdl.com/CRA/ by using the 17 digit receipt number provided by POP-SP or the acknowledgement number allotted by CRA-FC (Facilitation Centre) at the time of submission of application forms by POP-SP.

Exit & withdrawal rules

a) Upon attaining the age of 60 years

• Annuitization – minimum 40%, Lump sum withdrawal- maximum 60%
• If corpus < Rs 2 lakh – complete withdrawal
• Subscriber can stay invested in the NPS up to the age of 70 years. Fresh contributions are allowed during such a period of deferment; Can defer the withdrawal of eligible lump sum amount till the age of 70 years.
• Annuity purchase can also be deferred for maximum period of 3 years at the time of exit.

b) Exit from NPS before the age of 60 years

• Compulsory Annuitization – minimum 80%; Lump sum withdrawal- maximum 20%;
• If Corpus < Rs 1 Lakh, complete withdrawal

Upon Death of the Subscriber

In such an unfortunate event, option will be available to the nominee to receive 100% of the NPS pension wealth in lump sum.

Nominees for NPS account

• You need to appoint a nominee at the time of opening of a NPS account in the prescribed section of the registration form.
• You can appoint up to three nominees in your NPS Tier I and NPS Tier II account.

In such a case you are required to specify the percentage of share, which should not be in decimals that you wish to allocate to each nominee. The share percentage across all nominees should collectively aggregate to 100%.

Points to note

If the NRI has taxable income in India, he can get additional benefit of Rs 50,000 offered by NPS over and above the 80C benefits.

It is preferable to open an NPS account through the POP bank where the NRI maintains his NRE/NRO account.

At the time of payment of pension or annuity, the same is paid only in INR. There is no restriction on repatriation.

also see

• FAQs about NPS
• Online Registration for NPS
• NPS Calculator from HDFC

- Published on 24 February 2017

- Courtesy: Associated Press (AP)

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