National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme. The NPS has been designed to enable systematic savings during the subscriber’s working life.
It is an attempt towards finding a sustainable solution to provide adequate retirement income to every citizen of India.
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.
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.
Who can subscribe
- All citizens age from 18 years to 60 years of age, including NRIs and OCIs.
- 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 open NPS account
NPS is distributed through authorized entities called Points of Presence (POP). Almost all the banks (both private and public sector) in India are enrolled to act as Point of Presence under NPS.
To invest in NPS, you are required to open an NPS account through a POP bank, preferably where you have your NRI account.
You can send your NPS application form to your Bank for opening of the NPS account.
Overseas address and contact details as well as permanent Indian address need to be provided. You have the option of selecting the Pension Fund Manager.
The following documents need to be submitted to the POP bank for opening the NPS account:
- Completed subscriber registration form
- Copy of passport
- Proof of address, if the local address is different from the address in the passport.
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.
Published on 30 January 2017, Updated on 27 March 2019
4 thoughts on “Complete Guide to National Pension System (NPS) for NRIs”
I am an OCI working in Qatar. Can you please advice how I can invest in NPS. When I enquired my Bank, they advised that OCI’s cannot join NPS. Please advice.
What-if NRI status changed to Resident Indian few year after opening NPS account?
Sir, myself Mohammed Ariz working Saudi Arabia want NPS my nre a/c in canara bank Aligarh and at present my age is ,53 years.can I open my NPS in canara bank kela nagar branch aligarh
Dear sir , i am Ravindar Surugu. Now im working in dubai. I have NRE account in india from the Andhra Bank. So can i apply for the NPS account by online.