Are you an NRI looking to secure your financial future post-retirement? The National Pension Scheme (NPS) might just be the solution you've been searching for. In this guide, we'll delve into the intricacies of NPS for NRIs, covering everything from eligibility criteria to tax implications and the account opening process.

Understanding National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a retirement savings scheme initiated by the Indian government, aiming to secure individuals financially during their post-retirement years. Administered by the Pension Fund Regulatory and Development Authority (PFRDA), it was launched in 2004. NPS offers two tiers:

Tier 1 NPS:

This serves as the core account for retirement savings within NPS. Its primary objective is to help individuals accumulate a corpus for their retirement. Contributions made to Tier 1 NPS are subject to certain restrictions such as withdrawal limits and conditions. Tax benefits are available under Section 80C of the Income Tax Act, subject to specified limits. Withdrawals from Tier 1 NPS are constrained until the individual attains the age of 60, and upon withdrawal, a portion of the corpus must be utilized to purchase an annuity, ensuring a steady pension income.

Tier 2 NPS:

Considered as an optional supplement to Tier 1, Tier 2 NPS offers greater flexibility in terms of deposits and withdrawals. Unlike Tier 1, there are no restrictions on withdrawals from Tier 2 NPS, making it suitable for short-term financial goals or emergency funds. However, contributions made to Tier 2 NPS do not qualify for tax benefits under Section 80C.

It's noteworthy that Non-Resident Indians (NRIs) are permitted to invest only in Tier 1 NPS accounts. Additionally, upon retirement, NRIs can withdraw a maximum of 60% of their accumulated corpus as a lump sum, while the remaining 40% must be utilized to purchase an annuity, ensuring a steady income stream during retirement.

Eligibility Criteria for NRI Participation

1. · The scheme is open to NRIs aged between 18 to 60 years.
2. · NRIs must comply with the Know Your Customer (KYC) norms.
3. · Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs) are not eligible for participation.

To know registration process, check out below link:

How to Invest online in NPS as an NRI 

Benefits of NPS for NRIs

NPS matures when the subscriber reaches 60 years of age.

NRIs can remain invested until the age of 70 years with the option for continued fresh investment.

Flexibility in lump sum receipt and annuity investment.

Option to select fund manager, investment option, and asset allocation.

Tax Benefits under Section 80CCD (1) and Section 80CCD (1B).

Withdrawals and Tax Implications

Withdrawals for specific needs allowed after 3 years of account opening.

Tax benefits of up to Rs. 1.5 lakh under Section 80CCD (1) and an additional deduction of up to Rs. 50,000 under Section 80CCD (1B).

Withdrawal on retirement: After the subscriber attains the age of 60, up to 60% of the total corpus can be withdrawn in lump sum and it shall be exempt from tax. The remaining 40% shall be mandatorily used towards purchase of annuity, which shall also be exempt. The annuity income received in the subsequent years, however, shall be subject to income tax.

Conclusion

In conclusion, the National Pension Scheme (NPS) presents itself as a practical option for retirement planning, offering flexibility in contributions and guaranteed pensions post-retirement. For NRIs seeking to secure their financial future, NPS stands out as a preferred choice. Embrace the NPS journey today and pave the way for a secure tomorrow!

Disclaimer:

The above information/amendment/provision is to be used for ready reference only and not to be construed as legal advice.