Those non-resident Indians who are planning to secure a pension during their retirement years can consider opening an account with the National Pension System (NPS). This becomes an attractive option because NPS is a portable account and can be operated from anywhere in the world.
NPS allows Indian citizens, residents, and non-residents, between the ages of 18 and 85, to build a retirement corpus that grows with time and market performance. However, PIOs and OCIs are not eligible to open NPS accounts.
NPS is a defined-contribution, market-linked pension framework regulated by PFRDA. Investments are allocated across Equity, Corporate Bonds, and Government Securities through Active Choice or age-based Auto (Lifecycle) Choice. For NRIs specifically, the KYC requirements are different from what Indian residents need to furnish while opening the NPS account.
How NRIs can open an NPS account
To invest in NPS, you are required to open an NPS account through a Points of Presence (POP) bank, preferably where you have your NRI account. You can send your NPS application form to your bank for opening of the NPS account. You need to submit the subscriber registration form, a copy of your passport and proof of address if the local address is different from the address in your passport.
Every individual subscriber, including NRI, is issued a Permanent Retirement Account Number (PRAN) card, which has a 12-digit unique number. Once the application is filed, the subscriber can check the status by accessing the CRA website using the 17-digit receipt number provided by POP or the acknowledgement number allotted by CRA-FC (Facilitation Centre) at the time of submission of application forms by POP. Once the PRAN is generated, an email alert as well as an SMS alert will be sent to the registered email ID and mobile number of the subscriber.
Repatriable vs Non-repatriable NPS accounts
Through either an Aadhaar card or PAN and bank verification, NRIs can open their NPS account online. However, Tier II accounts will not be allowed under eNPS for NRIs. Under an NPS account, two sub-accounts — Tier I and Tier II — are provided. The Tier I account is mandatory, and the subscriber has the option to opt for a Tier II account.
NRIs can use their NRE or NRO account to start contributing towards the NPS account. NPS accounts for NRIs can be opened in two ways — Repatriable and Non-Repatriable — and the process differs for each.
For a Repatriable eNPS NRI account, you have to select any bank from the empaneled ones for verification and submit details of your NRE/NRO account, and all subsequent contributions have to be made through the same account provided during registration.
For a Non-repatriable eNPS NRI account, on the other hand, details of any NRE/NRO account of any bank may be filled in on a self-declaration basis, and initial as well as subsequent contributions can be made through any mode.
How the pension payout and taxation work
When the pension or annuity is paid, it will be paid in local currency only, that is, in INR. However, there is no restriction on the repatriation of pension, whether paid as an annuity or in a lump sum. Since withdrawal of a lump sum or payment of pension is treated as income and is chargeable to Income Tax, both operations will be treated as a current account transaction.
This is where NRE and NRO accounts come in: both are maintained in Indian Rupees, but NRE accounts are meant for foreign earnings, allowing full repatriation and offering tax exemption on interest, while NRO accounts manage income generated in India, with restricted repatriation and taxable interest.
Before you open an account
Before opening an NPS account, NRIs should get complete details on the formalities required for partial withdrawals, lump sum withdrawal, and pension. Even though the exit and withdrawal rules for NRIs are the same as for residents under the PFRDA (Exit and Withdrawals under the National Pension System) Regulations, the list of documents required will be different for them.
Bottomline
NPS for NRIs provides cross-country portability, flexible contribution options, asset allocation options including equity, bonds, and government securities, and partial withdrawal capabilities. The account is available to NRIs of various income levels and worldwide mobility, and it stays valid even when they return to India, ensuring seamless continuity of retirement planning.
The NPS for NRIs provides various benefits, including market-linked returns and tax breaks to save tax on their income generated in India.
NPS is a long-term investment that may run for several decades. As an NRI, if you have plans to renounce Indian citizenship in the future, it is better not to open an NPS account, since the day you cease to be an Indian citizen, the NPS account will be closed.
Disclaimer: This article is for informational purposes only and should not be construed as financial, tax, legal, or investment advice. NPS rules, PFRDA regulations, and taxation provisions applicable to NRIs are subject to change and may vary based on individual circumstances, country of residence, and evolving government policy. Readers, especially NRIs, are strongly advised to consult a qualified financial advisor or the relevant POP bank/CRA before making any investment or account-related decisions. Financial Express does not accept liability for any loss or damage arising from reliance on this content.