NRI investments in NPS (National Pension Scheme)

Published on Wednesday, April 15, 2020 by Chittorgarh.com Team | Modified on Thursday, May 28, 2020

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NRI investments in NPS (National Pension Scheme)

Eligible NRIs have been permitted by the Government of India to invest in the NPS scheme as the government aims to extend the benefit of the pension scheme to all the citizens of India. Just like resident Indians, NRIs too can open the account online and start investing in NPS online.


What is the National Pension System?

National pension system (NPS) is a voluntary long-term investment scheme launched by the Government of India to provide financial security in old age. The scheme helps to save for old age when there is generally no source of regular income and the funds are required for daily expenses or medical expenses which are likely to crop up in old age. NPS provides adequate regular income post-retirement by encouraging people to contribute during their working life in these schemes.

NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA). PFRDA is responsible for the appointment of the various bodies required for the functioning of NPS viz. Central Record Keeping Agency (CRA), Pension Fund managers, authorising banks as Point of Presence for NPS.

The CRA assists PRFDA to maintain the database of all NPS subscribers and undertakes end to end administrative work of managing NPS and thereby function as the backbone of NPS infrastructure. As of now, there are 2 CRAs viz. NSDL and Karvy appointed by PRFDA to manage the overall load of NPS work.

The pension fund manager is the one who would manage the funds invested across various asset classes. Currently, 8 fund managers have been appointed by PRFDA to manage the entire NPS corpus.

  1. Aditya Birla Sun Life Pension Management Limited.
  2. HDFC Pension Management Company Limited.
  3. UTI Retirement Solutions Limited.
  4. SBI Pension Funds Private Limited.
  5. ICICI Prudential Pension Funds Management Company Limited.
  6. Reliance Pension Fund.
  7. Kotak Mahindra Pension Fund Limited.
  8. LIC Pension Fund

NRI NPS benefits

NPS is a pension scheme design for a safe and secure future. A small amount of investment in NPS over a long time can result in a stable source of earning at the time of retirement. In case of death of the subscriber, the full amount is paid to the nominee. Here are more benefits of NPS scheme:

  • Earn a stable pension after 60 years
  • Design for a safe and secure future
  • An easy online investment like SIP
  • Tax benefit up to ₹2 Lakh
  • Available to all resident Indians and NRIs
  • Online account management
  • The scheme is regulated by government agencies

Eligibility Criteria for NRI investment in NPS

To be eligible to invest in NPS, an NRI should be between 18 to 60 years of age and should comply with KYC norms. Overseas Citizens of India (OCI) are permitted to invest in NPS since Oct 2019.

A Person of Indian Origin (PIO) and HUF cannot invest in NPS.


NRI NPS Account Opening Process

Eligible NRIs can fill the NPS account opening form online with Aadhar Card or PAN card. Print it, sign it and send it to send to CRA within 90 days.

Step to open NPS Account

  1. Visit the eNPS site and start with the registration process in the capacity of an NRI.
  2. NRI needs to select the type of bank account from where the investment would be made i.e. NRE account or NRO account.
  3. Complete the registration by updating bank details, PAN, Passport No., country of residence, photograph and personal contact details.
  4. As a next step, NRI should select one of the above mentioned 8 pension fund managers along with indicating the mode of investment as Active or Auto.

    The Active mode of investment is where an NRI can themselves select the allocation percentage of their investment across asset classes of equity, corporate bonds and government securities based on their risk appetite. The investment in the equity asset class for the subscribers up to 50 years of age is permitted till 75% of the total asset allocation. However, for subscribers above 50 years of age, the equity asset allocation is permitted as per the below table.

    NPS Equity Asset Allocation by Age

    Age Permitted Equity Allocation
    Upto 50 75%
    51 72.5%
    52 70%
    53 67.5%
    54 65%
    55 62.5%
    56 60%
    57 57.5%
    58 55%
    59 52.5%
    60 and above 50%

    The Auto mode of investment is where the allocation across the asset classes happens automatically based on the age profile of the subscriber.

  5. As the last step, the NRI needs to make an initial contribution of ₹500 through the selected NRE/NRO account.
  6. The system generates a Permanent Retirement Account Number (PRAN) notifying that the account has been successfully opened.
  7. Download the system generated form, print it, sign it and sent it to CRA within 90 days.

Alternate way to open NPS Account

The other option to open the account is via Point of Presence. The PFRDA has appointed various banks to act as service providers for NPS. In this case, NRI can download the form from the bank website (sample NRI NPS application form) and fill in the details as per the instructions given in the form. An NRI should preferably open an NPS account through the bank where the NRI is holding an NRI account. The application form is required to be submitted to the bank along with KYC documents who in turn will further submit it to the CRA. On receipt of documents, CRA will allot the PRAN on the successful verification of the details and documents.


Contribution required in NPS

  • A minimum contribution of ₹500 is required to be done at the time of account opening.
  • Once the account is opened, a minimum contribution of ₹6,000 per annum is required to be done either as ₹6,000 at one go or in installments with the minimum contribution being ₹500 per contribution.

NPS Scheme Details

There are 2 schemes in NPS viz, Tier 1 and Tier 2. Tier 1 is for retirement and Tier 2 is an additional savings account. However, NRI investment is restricted only to Tier 1.

NPS Tier 2 is a non-retirement NPS account. Any resident Indian can invest in this account. This account doesn't have any lock-in or exit penalties. You can put money into it or withdraw anytime. It also doesn't offer any tax benefits except for government employees who get Rs 1.5L under Section 80C. There are no investment limits or minimum balance in this account.


NPS Tax Benefit

Investing in NPS provides a tax benefit of up to ₹1.5 lakhs under section 80C and ₹50,000 under section 80CCD of Income Tax Act.


NPS Withdrawal Process

Funds in your NPS account can be withdrawn under 3 scenarios:

  1. Upon attaining the age of 60 years
  2. Before attaining the age of 60 years i.e. early exit with the condition that the subscriber has been a part of NPS at least for 10 years.
  3. Upon the death of the subscriber.

If the exit is on account of the unfortunate death of the subscriber the entire pension amount accumulated is paid to the nominee appointed by the subscriber.

In other cases when you opt to exit from NPS, you cannot withdraw the entire amount accumulated under NPS as a certain percentage has to be mandatorily utilized to buy an annuity that would provide monthly pension to the subscriber.

NPS Withdrawal Rules and Restrictions

Withdrawal Type At the age of 60 Before the age of 60
Lumpsum withdrawal Permitted maximum to the extent of 60% Permitted maximum to the extent of 20%
Annuity Purchase Minimum 40% should be utilized for an annuity purchase Minimum 80% should be utilized for an annuity purchase
Complete withdrawal Permitted only if the pension corpus is less than ₹2 lakhs Permitted only if the pension corpus is less than ₹1 lakh

Apart from the early exit, NPS also offers the facility of partial withdrawal to the extent of 25% of the pension amount accumulated by the subscriber. To be eligible for partial withdrawal, one must have been with NPS for 10 years. Partial withdrawal is permitted only for the higher education of children, the marriage of children, the treatment of certain health issues and for construction of the house. The partial withdrawal is allowed only for 3 times during the entire NPS subscription with a gap of 5 years between two withdrawals.


Extension of NPS beyond the age of 60

In case one wishes to contribute to NPS beyond the age of 60, it can be done for another 10 years i.e. till the age of 70 years. However, post that one needs to exit from NPS with the same exit rules as applicable at the age of 60 years.


Charges for investing in NPS

The NPS has many intermediaries involved in its architecture and each of them charges fees for providing service thus NPS investment too comes with a cost like any other investment. The below table will provide a summarized view of the charges levied by each intermediary.

NPS Charges List

Intermediary Charge head Service charges
CRA

PRAN Opening charges

NSDL: ₹40 or Karvy: ₹39.36

Annual PRA Maintenance cost per account

NSDL: ₹95 or Karvy: ₹57.63

Charge per transaction

NSDL: ₹3.75 or Karvy: ₹3.36

Point of Presence (POP)

[Note: These charges are applicable only if the account is opened through POP. If the account is opened via eNPS there are no POP charges]

Initial subscriber registration and contribution upload

₹200

Any subsequent transactions

0.25% of the contribution,

Minimum. ₹20 Maximum. ₹25000

Persistency

> 6 months & ₹1000 contribution

₹50 per annum

Contribution through eNPS

0.10% of contribution,

Min. ₹10 Max. ₹10000

Custodian

Asset Servicing charges

0.0032% p.a. for Electronic segment & Physical segment

PF charges

Investment Management Fee

0.01% p.a.

NPS Trust

Reimbursement of Expenses

0.005% p.a.


Conclusion

Should NRI invest in NPS?

NPS investments are a convenient and low-cost investment avenue with tax benefits aimed for a safe and secure future. However, as every coin has 2 sides, NPS investments too have certain flips side like liquidity issue, mandatory purchase of annuity during withdrawal and, returns linked to market fluctuations. Hence, one should assess one's financial planning for the future before considering investing in NPS.

 

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Frequently Asked Questions

  1. 1. Can NRI invest in NPS India?

    Yes, NRIs are permitted to invest in NPS. Any NRI who is between the age of 18 to 60 years of age is allowed to open an NPS account on complying with KYC norms. Note that NRIs holding PIO card and NRIs HUF are not permitted to invest in NPS in India.

     

  2. 2. Are NRIs allowed to invest in NPS?

    NRIs are allowed to invest in NPS launched by the government of India to provide security in old age. To be eligible to invest in NPS, an NRI should be between 18-60 years of age and should comply with required KYC requirements.

     

  3. 3. How can an NRI open an NPS account in India?

    An NRI can fill the NPS account opening form online at the eNPS site. After completing the online form, it has to be downloaded, printed, signed and sent it to the given address.

    On completion of the above steps, a PRAN (Permanent Retirement Account Number) gets generated which signals the successful opening of the NPS account.

    Alternatively, an NRI can also open the NPS account through banks that are appointed as Point of Presence to provide NPS service. The registration form needs to be downloaded from the bank website and complete the registration process. The form needs to be submitted to CRA through banks. CRA would allot the PRAN on completion of verification of subscriber.

     

  4. 4. Can NRI invest in NPS Tier 2?

    There are two schemes in NPS - Tier 1 and Tier 2.

    • Tier 1 scheme is a retirement account and is mandatory for all subscribing to NPS.
    • Tier 2 scheme is an additional saving scheme over and above Tier 1.

    Only resident Indians are allowed to invest in both schemes and NRI investment in NPS Tier 2 scheme is not allowed and is restricted only to Tier 1.

     

  5. 5. What is the minimum amount required to be contributed to NPS?

    A minimum contribution of ₹500 is required to be done while opening the NPS account and once the account is opened a minimum contribution of ₹6000 is required to be done per annum. The amount of ₹6,000 can either be paid together or can be done in installments. The installment amount should not be lesser than ₹500.

     

  6. 6. What is the maximum contribution allowed in NPS?

    The NPS has conditions on the minimum contribution that is required to be fulfilled. However, there is no limit on the maximum amount. An NRI can invest without any restrictions in NPS but the tax benefit is allowed only to the extent of ₹1.5 lakhs under 80C and ₹50,000 under section 80CCD as applicable.

     

  7. 7. What is the lock-in period in NPS?

    The NPS has a very long lock-in period. The official exit in NPS is allowed at the age of 60. Hence if one starts investing in NPS say at the age of 30 years, there is a lock-in period of 30 years involved.

    NPS does allow early exit from the scheme (with few restrictions) provided a person has been invested in NPS for at least 10 years.

     

  8. 8. Can an NRI withdraw from NPS before the age of 60?

    The exit age from NPS is on attaining 60 years. However, there is an option to exit early before the age of 60 or upon the death of the subscriber.

    In case one exits before the age of 60, only 20% maximum of the lump sum amount of corpus collected is paid to the subscriber and 80% is to be utilized towards the purchase of an annuity. Only if the corpus amount is less than ₹1 lakh, full withdraw is allowed.

    In case of death of the subscriber, the full amount is paid to the nominee. The purchase of an annuity is an option in case of death.

    Apart from an early exit from NPS, there is an option for partial withdrawal as well permitted in case of specific reasons. In partial withdrawal, one can withdraw up to 25% of the corpus accumulated provided he has been with NPS for 10 years. The partial withdrawal is allowed only 3 times during the entire NPS span with a gap of 5 years between two withdrawals.

     

  9. 9. Can I partially withdraw from NPS anytime?

    Though NPS allows partial withdrawal, it is permitted only in case of specific scenarios as per below:

    • For higher education of children.
    • For the marriage of children.
    • For the treatment of specific illnesses.
    • For construction/purchase of a house.

     

  10. 10. Can an NRI withdraw 100% of the NPS amount?

    The withdrawal rule in NPS allows 100% of claim only in case of the below scenarios:

    • In case of the death of the subscriber.
    • If the corpus amount is less than ₹1 lakh in case of an early exit.
    • If the corpus amount is less than ₹2 lakhs in case of maturity of NPS at the age of 60 years.

    In other than the above cases, one cannot withdraw 100% of the amount accumulated in NPS and a certain portion has to be mandatorily utilized towards purchase of an annuity which would provide NRIs a regular income as pension in their retirement life.

     

  11. 11. Can an NRI have more than one NPS account?

    No, PRFDA does not permit the NPS subscribers to have more than one NPS account. The rule is 'one person - one account' with no joint ownership.

     

  12. 12. Is the purchase of an annuity mandatory?

    The purchase of an annuity is mandatory when one exits from the NPS. The aim is to provide regular income as a pension to the subscriber by investing in annuity plans. As per the rules, one needs to invest a certain percentage of the corpus amount towards the purchase of an annuity as per below:

    • Minimum 40%, in case of an exit at the age of 60 years; and
    • Minimum 80% in case of an early exit before the age of 60 years.

    One can defer the purchase of an annuity for a period of 3 years but cannot avoid it. The purchasing of an annuity is optional in case of the death of the subscriber.

     

  13. 13. Can an NRI extend the tenure of NPS beyond 60 years?

    Ideally, the eligibility criteria to invest in NPS is for individuals between 18-60 years. One cannot start to subscribe to NPS after 60 years. However, if one is already a subscriber of NPS and wishes to contribute beyond 60 years, it is allowed to be done for a further period of 10 years i.e. one can continue contributing till the age of 70 years but post that one needs to exit as per the NPS exit rules that are applicable at the age of 60 years.

     

  14. 14. Is there any investment cap in the Tier 2 Fund of NPS?

    No, NPS Tier 2 funds don't have any investment cap. There is also no minimum account balance and no lock-in period or exit penalties. You also do not get the tax benefits unless you are a government employee. They work very much like a Mutual Fund.

    Government employees in India get Rs 1.5L under Section 80C. But their investment comes at 3 years lock-in period.

    NRIs are not permitted to invest in the Tier 2 Funds of NPS.

     

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