A vast majority of NRIs working overseas retain their roots in India and would wish to maintain corpus back home for eventual relocation. Investing in a pension scheme that would generate post-retirement annuity in India definitely provides a good opportunity. The Pension Fund Development and Regulatory Authority (PFRDA) recently clarified that investment in NPS is open to NRIs who are citizens of India.
The NPS is a defined contribution scheme. It enables Indian citizens in the age group of 18 to 60 years to save towards creating a corpus and enables the subscriber to purchase annuity post retirement. NPS is open both to the employees of the corporate sector as well as other individuals.
With minimum contributions as low as R500 per month (Tier-I account), NPS enables a flexible investment pattern and provides a choice of funds. Record keeping at the individual level enables NPS to provide portability across geographies and employment. It is mandatory to invest at least 40% of the accumulation in an annuity scheme on regular retirement. The balance amount could be withdrawn as a lump sum. In the unfortunate event of death of the account holder, the entire amount could be withdrawn as a lump sum by the beneficiary.
How NPS operates
Contributions to NPS are required to be routed through the Points of Presence (POPs). NRIs may contribute to the NPS by transfers from their NRE / NRO accounts or from their local funds. An NPS account is required to be opened in the name of a specified individual; joint accounts are not permitted. Operating the account through a power of attorney is not permissible.
Once the initial account opening form is submitted and the Permanent Retirement Account Number (PRAN) is allotted, the transactions may be made online. If the NRI chooses to surrender Indian citizenship, the NPS account will be closed.
Tax benefits
Contributions by individuals to the NPS (subject to a ceiling of 10% of gross income) are eligible for a deduction of up to R1,50,000 along with contributions to other schemes (PPF, LIC premiums, etc). An additional deduction of up to R50,000 is specifically permissible for contributions to NPS in addition to the above. Withdrawals from NPS, both in the form of lump sum amounts as well as the annuity receipts, are taxable.
The PFRDA, in its efforts to woo the NRI population, has issued FAQs and provided clear instructions in the application form for NRIs. Investors are provided the flexibility of choosing the manner in which the contribution is to be invested. Based on the individual choice, the NPS wealth of the individual would be allocated to various investments, such as equity-related, government securities or other fixed-income investments. Given the flexibility of investments, the low administrative costs and the tax benefits, NRIs need to check out the advantages before deciding on their investments.
The writer is a director at Deloitte Haskins & Sells LLP