The National Pension Scheme (NPS) introduced by the Indian government is gaining popularity among non-resident Indians (NRIs) and people of Indian origin holding citizenship of other countries, categorised as Overseas Citizens of India (OCI).
India’s Pension Fund Regulatory and Development Authority (PFRDA) recently allowed OCIs to subscribe to the scheme. Such citizens are either looking forward to returning to India or whose parents are still living in India. Earlier, NRIs were allowed to invest in NPS only through the offline mode.
The NPS is a government-run pension and investment scheme aimed at providing old age security. Any Indian citizen, resident or non-resident, and OCIs are eligible to join NPS till the age of 65. The scheme allows its subscribers to contribute regularly during their working life.
According to a government notification, more than 31.8 million individuals, including NRIs, have subscribed to the NPS, which offers various tax benefits.
There are many individuals of Indian origin who have taken up foreign citizenship while working overseas and may prefer to continue investing in India from their local income sources.
Some OCIs have also returned to India permanently while continuing to maintain their foreign citizenship. As these individuals did not retain India citizenship and therefore did not qualify as NRIs, they were not allowed to invest in NPS.
Such OCIs can now take advantage of the NPS investment avenue and associated income tax benefits, repatriation of the accumulated savings and annuity from the NPS to a bank account outside India.
Lump sum withdrawal allowed
The subscribers at the time of retirement can withdraw the money in the form of lump sum withdrawal or annuity payments. The minimum contribution during account opening is INR500 ($7.05; £5.47; €6.36).
NRIs are allowed a partial withdrawal of accumulated pension wealth for certain purposes, not exceeding 25% of the employee contributions, after a lock in period of three years. They are allowed to withdraw only a maximum of three times during the entire tenure subject to conditions prescribed by the regulator.
A subscriber can exit the scheme on attaining the age of 60 years. A minimum of 40% of the corpus needs to be invested in annuity scheme, and 60% of the corpus can be commuted or withdrawn in lump sum any time up to age of 70 years, and 60% of total corpus withdrawn is tax free. The scheme can be subscribed from the NRE account maintained by NRIs.
NRI subscribers can opt for repatriation or non-repatriation. If the subscriber opts for repatriation, bank account should only be NRE and future contributions must also come from NRE account.
If NRI subscribers opt for non-repatriation, the future credits will be made in NRO account only. NRI subscriber has option to shift from repatriable account to non-repatriable account. Pension and annuity will be paid in local currency.
Tax exemptions
Benefits of investing in NPS for securing post retirement life include tax exemption of 20% of gross income with a ceiling of INR150,000. The fund management charge is 0.01%.
Subscribers are offered superior marked-linked returns compared to other pension products. They are also offered complete withdrawal for corpus less than INR200,000.
Where the total accumulated corpus is less than INR200,000 on attaining the age of 60 or later, the subscriber can withdraw the entire corpus. In the event of the death of a subscriber, the nominee will receive 100% of the NPS pension wealth as a lump sum.
