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NPS for NRIs: For Indians living abroad—Non-Resident Indians (NRIs)—the National Pension System (NPS) can be a viable option for building a retirement fund in India. NRIs can also avail themselves of tax benefits under the scheme, subject to applicable rules. However, NRIs should not view the NPS solely through the lens of tax savings. Factors such as residential status, investment methods, income taxable in India, the tax system, and the tax treatment of NPS in their country of residence can all influence the overall benefits. They must also consider aspects related to currency, repatriation rules (transferring funds back to their country of residence), withdrawal restrictions, and the mandatory requirement to purchase an annuity with a portion of the fund upon exit.

Can NRIs invest in NPS?

Along with NRIs, Overseas Citizen of India (OCI) cardholders are also eligible to invest in the NPS, subject to meeting eligibility and KYC requirements. However, they can only open an NPS Tier-1 account; Tier-2 accounts are not permitted for them. To do so, they require a PAN card, an Indian passport, proof of address, and an NRE or NRO bank account.

What are the tax benefits for NRIs investing in NPS?

NRIs investing in the NPS can claim tax exemptions in India under the Income-tax Act. Vijay Bharech, a Partner at Deloitte India, notes that deductions for NPS investments can be claimed under the old tax regime. Salaried individuals can claim a deduction of up to 10% of their salary (basic pay plus Dearness Allowance), while non-salaried individuals can claim up to 20% of their gross total income. This deduction is subject to an overall cap of ₹1.50 lakh. Additionally, individuals can claim an extra deduction of up to ₹50,000 on eligible NPS contributions. Thus, under the old tax regime, NRIs can claim a total deduction of up to ₹2 lakh in a financial year on their NPS contributions.

Consequently, this benefit is advantageous for NRIs who have a tax liability on their income in India. However, the actual savings will depend on the individual's income, the applicable tax regime, and their eligibility for deductions.

**What are the withdrawal rules?**

NPS is a long-term retirement savings scheme, and NRIs can withdraw their accumulated corpus upon reaching the specified exit age. The scheme also allows for partial withdrawals and premature exits, subject to certain conditions. Subscribers can withdraw a portion of the funds before retirement after investing in the scheme for at least three years. Before the age of 60, NRIs can withdraw up to 25% of their own contributions—subject to specific conditions—up to four times during the entire subscription period, with a minimum gap of four years between withdrawals.

**What are the account closure rules?**

Siddhant Agarwal, Co-founder and Director of 'India for NRIs', states that upon maturity—at age 60 or the revised age limit—subscribers can withdraw up to 80% of the accumulated corpus as a lump sum, while the remaining 20% ​​is used to purchase an annuity for regular pension income. Government regulations mandate that a portion of the accumulated corpus be allocated to an annuity. The PFRDA has recently amended the rules, raising the lump-sum withdrawal limit to ₹8 lakh in certain cases and extending the maximum investment age to 85 years. What to Check Before Investing

Before investing in the NPS, NRIs should assess the tax implications in both India and their country of residence, including the provisions of the Double Taxation Avoidance Agreement (DTAA). Sureshkumar S, a Partner at Deloitte India, notes that being an NRI does not mean the tax situation is identical for everyone. He explains that the post-tax returns can vary significantly depending on the country of residence, taxable income in India, the tax system, and the status of the DTAA.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.