NRI investments in NPS (National Pension Scheme)

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

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 Rs 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 Rs 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 Rs 500 is required to be done at the time of account opening.
• Once the account is opened, a minimum contribution of Rs 6,000 per annum is required to be done either as Rs 6,000 at one go or in installments with the minimum contribution being Rs 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 Rs 1.5 lakhs under section 80C and Rs 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.

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.

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.