Non-Resident Indians (NRIs) can invest in the National Pension System (NPS) to build a retirement corpus in India. The NPS All Citizen Model is open to Indian citizens living in India or abroad, as well as Overseas Citizens of India (OCIs), between the ages of 18 and 85, subject to KYC requirements.
For NRIs, however, NPS has some important differences compared with resident investors. The most significant one is that an NRI or OCI can have a Tier-I NPS account but cannot activate a Tier-II account. Tier-I is the retirement-focused account with withdrawal restrictions, while Tier-II is a more flexible investment account.
How Can NRIs Invest in NPS?
NRIs can contribute to NPS through permitted banking channels, including NRE and NRO accounts, subject to applicable rules. The NPS account remains linked to the subscriber’s PRAN and contributions are invested according to the pension fund and investment option selected by the subscriber.
An NRI can choose between Active Choice, where the investor decides the allocation between equity, corporate debt and government securities, and Auto Choice, where the allocation changes based on age. Equity exposure under the applicable NPS framework can go up to 75%.
Also Read: Assets vs Liabilities: The Financial Lesson That Can Change Your Life
What About Tax Benefits?
NPS provides tax benefits under the Income Tax Act, but NRIs need to examine their individual Indian taxable income and the tax regime they use.
Under the old tax regime, eligible contributions can qualify for deductions under sections such as 80CCD(1) and 80CCD(1B), subject to the applicable limits. Section 80CCD(1B) provides an additional deduction of up to ₹50,000. Employer contributions under section 80CCD(2) are subject to separate rules.
The benefit may be less relevant for an NRI who has little or no taxable income in India. Therefore, NRIs should not assume that opening an NPS account automatically creates a tax saving.
How Do NPS Withdrawal Rules Work for NRIs?
NRI subscribers are generally governed by the NPS exit and withdrawal framework applicable to the All Citizen Model. The rules have also changed recently.
Also Read: How to Build a ₹1 Crore Corpus From Your Salary: A Practical Wealth-Building Plan
Under the current framework, a normal exit can take place after reaching 60 years of age or completing 15 years of subscription, whichever is earlier, subject to the applicable scheme conditions. At normal exit, subscribers can generally withdraw up to 80% as a lump sum, while at least 20% is used for annuity.
For premature exit before the normal-exit conditions are met, the permitted lump-sum withdrawal is generally up to 20%, with at least 80% required for annuity, subject to applicable rules. For smaller accumulated corpus amounts, separate provisions may allow higher or complete lump-sum withdrawal.
Can NRIs Make Partial Withdrawals?
Yes. Partial withdrawals from Tier-I are permitted under specified conditions. A subscriber generally becomes eligible after completing three years in NPS. Withdrawals can be made for permitted purposes and are limited to 25% of the subscriber’s own contributions, subject to the applicable frequency and other conditions.
What Happens If an NPS Subscriber Dies?
In the event of the subscriber’s death, the accumulated corpus can generally be paid to the nominee or legal heir according to the applicable NPS rules. The current framework permits the corpus to be received as a lump sum in the case of death, subject to the prescribed process.
Also Read: How to Choose a High-Yield Savings Account
What If an NRI Returns to India?
NPS is linked to the individual’s pension account rather than simply their residential status. Therefore, a change in residential status does not by itself mean that the NPS account has to be closed. The subscriber should update the relevant KYC and residential-status information with the NPS intermediary when required.
For NRIs considering NPS, the key factors are therefore retirement horizon, Indian taxable income, tax regime, liquidity requirements and the need for a pension-oriented investment.
NPS can provide NRIs with a regulated retirement investment option in India, but its restricted withdrawal structure means it is different from a normal mutual fund or brokerage investment. The decision to invest should therefore be based on the individual’s retirement objectives and tax situation rather than simply the availability of NPS to NRIs.
This article is for educational purposes only. NRI taxation and repatriation rules can vary depending on individual circumstances and applicable regulations.
Also Read: How Inflation Destroys Your Wealth & How to Beat It | Complete Beginner Guide – Onetrader
