National Pension Scheme: A new option for NRIs- Business News
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National Pension Scheme: A new option for NRIs

NRIs can now invest in the National Pension Scheme to provide them income security when they return and retire in India.

 Jinsy Mathew   
  • December 3, 2015  
  • |  
  • UPDATED   14:37 IST
Photo: Images Bazaar
Photo: Images Bazaar

Recently, the Reserve Bank of India (RBI) allowed non-resident Indians (NRIs) to subscribe to National Pension Scheme (NPS) which is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. This scheme is governed by the Pension Fund Regulatory and Development Authority.

 

Eligibility criterion

  • Any NRI between the age of 18 and 60 years.
  • Not valid for Person of Indian Origin and Overseas Citizenship of India.
  • If the subscriber's citizenship status changes, his/ her NPS account would be closed.
  • Investment in NPS is independent of other contribution to any Provident Fund.

 

Source and minimum contribution

  • Minimum contribution at the time of opening account-Rs 500.
  • Minimum contribution per annum-Rs 6,000.
  • Maximum contribution-no limit.
  • Documents required
  • Filled subscriber registration form.
  • Copy of passport.
  • Proof of address in case local address is different from the address on passport.

 

Key features

  • Every individual subscriber is issued a Permanent Retirement Account Number (PRAN) card which has a 12 digit unique number.
  • Under the scheme, there are two options available in terms of accounts-Tier I and Tier II. Tier I is a mandatory account which will be provided to every subscriber. Tier II account, which is a voluntary savings facility, is optional and is available as an add on to Tier I account.

 

Partial withdrawal and exit rules

  • Partial withdrawal is allowed for upto 25 per cent of the contributions for those who have subscribed to the scheme for at least 10 years.
  • Higher education, marriage of children, purchase or construction of residential flat and treatment of specified illnesses are the only grounds on which partial withdrawal is allowed.
  • Premature exit is allowed only after completion of minimum 10 years with the scheme.

 

Should NRIs invest in NPS?

  • Yes, only if the subscriber has the intention to return and retire in India.
  • Financial advisers are of the view that the product is not only cost-effective and well regulated, but also has a history of delivering 8-10 per cent returns over the last 10 years.
  • Given that NPS is a combination of debt and equity, it can be considered as a part of one's portfolio but should not be seen as the only retirement product one should possess.
  • One should be aware of the foreign exchange risk factor when it comes to withdrawing the amount invested in India.
  • The annuity and maturity amount, which is taxable, is a serious negative. Also, the cap on 50 per cent equity is a deterrent as it is a long term product.
  • NRIs residing in the US have to declare their investment and the annuity under the Foreign Account Tax Compliance Act.

 

Expert view

"Investing in NPS has become progressively attractive over the years. However, taxation of annuity as income is a big dampener. If that is removed, then this surely becomes a great option for later."

Suresh Sadagopan, Founder, Ladder7 Financial Advisories

"On withdrawal, pension is taxable both in India and US, which is a serious negative that works against the product. In the US, one should declare the income earned from Indian investment and claim tax credit under DTAA."

Anil Rego, CEO, Right Horizons

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