National Pension Scheme (NPS) for NRI in 2024

What is the National Pension Scheme (NPS) for NRI?

The National Pension Scheme (NPS) is a voluntary, long-term pension plan offered by the Government of India that provides financial security during your golden years. This scheme offers a structured and tax-efficient way to build a retirement corpus for NRIs.

NPS offers a mix of equity, fixed deposits, liquid funds, and government funds for investment. Contributions are invested with the aim of providing stable returns in the long run. NRIs can avail of tax benefits under certain conditions and have the flexibility to choose their fund manager and investment allocation within NPS.

Features of the National Pension Scheme for NRI

The NPS, a government-sponsored pension scheme, offers the following key features:

Eligibility Criteria to Invest in NPS

To invest in the National Pension System (NPS), individuals must meet certain eligibility criteria:

• Age: Individuals aged 18 to 60 years are eligible to invest in the National Pension System (NPS).

• Citizenship: Both Indian residents and non-residents are allowed to participate in NPS.

• KYC Compliance: Investors must complete the Know Your Customer (KYC) process to be eligible.

• Unique Permanent Retirement Account Number (PRAN): Investors need to obtain a PRAN to open an NPS account.

What are the Benefits of NPS for NRI?

The following key benefits of the National Pension Scheme (NPS) for the NRI:

• Invest in India: NPS offers NRIs hassle-free access to investment options in India.

• Market-Linked Returns: Build a corpus in long-term with market-linked returns.

• Tax Advantages: Enjoy tax benefits of up to Rs. 2 lakhs on NPS contributions as an NRI.

• Guaranteed Pension: At retirement, 40% of your savings becomes an annuity plan.

• Retirement Security: Build a robust retirement corpus with NPS, ensuring financial security.

• Low-Cost Structure: Enjoy higher returns with minimal charges, maximizing overall gains.

• Lump Sum Benefits: You can take 60% of your corpus as a lump sum on retirement to purchase that dream house, or car, or go on a vacation.

• Easy Repatriation: Repatriate NPS proceeds effortlessly when the need arises.

• Online Management: Efficiently manage NPS accounts online, offering convenience.

What are the Tax Benefits of NPS for NRI

The tax benefits on gain and income earned from your investments in the National Pension Scheme (NPS) for NRIs are listed below:

1. Employee Tax Benefits for Self-Contribution:

   • Deduction of up to 10% of salary (Basic + DA) under Section 80CCD(1), max Rs. 1.5 lakh (Section 80CCE).

   • Additional Rs. 50,000 deduction under Section 80CCD(1B) within Rs. 1.5 lakh limit.

2. Employer Contribution Tax Benefits:

   • Deduction up to 10% of salary (Basic + DA) or 14% (if by Central Govt.) under Section 80CCD(2).

   • Beyond Rs. 1.5 lakh limit under Section 80CCE.

3. Tax Benefits for Self-Employed Individuals:

   • Up to 20% deduction of gross income under Section 80CCD(1).

   • Additional Rs. 50,000 deduction under Section 80CCD(1B) within Rs. 1.5 lakh limit (Section 80CCE).

4. Tax-Exempt Partial Withdrawals:

   • 25% of self-contribution exempt from tax under Section 10(12B), following PFRDA criteria.

5. Tax Exemption on Annuity Purchase:

   • Tax exemption on annuity purchase or superannuation at 60 years (Section 80CCD(5)).

   • Subsequent annuity income taxed under Section 80CCD(3).

6. Tax Advantages on Lump Sum Withdrawal:

   • Section 10 grants tax exemption on 60% lump sum withdrawal at 60 years or superannuation.

7. Corporate/Employer Tax Breaks:

   • Employer's NPS contribution deductible, up to 10% of employee's salary (Basic + DA) as 'Business Cost' under Section 36(1)(iv)(a).

What are the Different Types of NPS Accounts for NRI?

National Pension Scheme offers two types of NPS accounts to NRI investors:

1. Tier I NPS Account:

   • Mandatory retirement account.

   • Maturity amount at age 60.

   • Partial withdrawals are allowed after age 50.

2. Tier II NPS Account:

   • Voluntary savings account.

   • Withdrawal anytime.

What is the Difference Between NPS Tier-I And Tier-II Accounts for NRI?

This concise table highlights key differences between NPS Tier-I and Tier-II accounts for NRIs in Singapore:

How Can an NRI Invest in NPS?

The Pension Fund Regulatory and Development Authority of India offers both an online and offline process to open an NPS account. Let's take a look at how to open an NPS account.

1. Online Process

   • Visit the official NPS website.

   • Complete the online registration process.

   • Provide necessary KYC documents.

   • Choose the preferred NPS fund and contribution amount.

   • Make an online payment through available options.

2. Offline Process

   • Visit a designated NPS Point of Presence (PoP) in Singapore.

   • Fill out the NPS registration form.

   • Submit KYC documents along with the form.

   • Select the desired NPS fund and contribution amount.

   • Make the payment through the PoP in person.

Premature Withdrawals Under the National Pension Scheme for NRI

1. Withdrawal at 60 Years:

   • At age 60, withdraw 60% of your NPS scheme savings.

   • Use the remaining 40% for purchasing an annuity.

   • Opt for a full lump sum withdrawal if your pension savings are ₹5 lakh or less.

2. Pre-60 Years Withdrawal:

   • Before turning 60, utilize at least 80% of your accrued pension corpus to buy an annuity for monthly income.

   • If your total corpus is ₹2.5 lakh or less, choose a 100% lump sum withdrawal.

3. Death of Subscriber:

   • In case of the subscriber's demise, the entire corpus is transferred to the beneficiary or legal heirs.

   • Required documents include beneficiary's ID, death certificate, etc.

Rules of Equity Allocation for NRI

• The NPS scheme divides investments into different asset classes. Asset Class E emphasizes equity, allowing up to 50% allocation.

• Choose between auto and active options: auto choice aligns with age for risk profile, while active choice lets you personally allocate investments.

• Asset Class E focuses on equity, with 50% maximum allocation.

• Two choices: auto assigns based on age for risk, active lets you decide where to invest.

NPS vs. Other Tax-Saving Investments

Let us look at the comparison between the NPS scheme and other tax-saving investments for NRI:

*The taxability on NPS scheme withdrawals is subject to change.

How an NRI Can Login to a National Pension Account for the First Time?

• Visit the official National Pension System (NPS) website.

• Click on the "New Registration" or "Sign Up" option.

• Fill in your personal details, including your Permanent Account Number (PAN) and valid email address.

• Choose a secure password for your NPS account.

• Verify your mobile number through the OTP sent to you.

• Provide your bank details for contributions and withdrawals.

• Upload the required KYC documents.

• Review the information entered and submit the registration form.

• Once approved, you will receive a confirmation email.

• Use your PAN and chosen password to log in to your NPS account for the first time.

Conclusion

National Pension Scheme (NPS) presents a strategic and flexible investment option for retirement planning for NRIs in Singapore. With its tax benefits, diverse investment options, and portability, the NPS offers a customized solution to secure financial well-being after retirement. NRIs can leverage this robust pension scheme to build a sustainable and secure future, making informed investment choices to suit their individual financial goals.