National Pension Scheme: What is it & What an NRI Needs to Know About It

The Reserve Bank of India (RBI) has allowed NRIs to invest in the National Pension System (NPS), under the Foreign Exchange Management Act. NPS will allow NRIs to invest in a mix of equities and debt and save for their retirement. So, here’s everything you need to know about NPS:
1. What is NPS?
The National Pension Scheme is a retirement savings scheme launched by the Indian Government in 2004. Under the NPS system, subscribers are allotted a Permanent Retirement Account Number (PRAN) which is unique to every subscriber. Ultimately, the benefits that the subscribers receive depends on the volume of contributions, returns on these contributions, and the total period for which contributions were made.
2. Eligibility 
• The NRI should be between 18 and 60 years of age and should have a PAN card along with a bank account in an NPS empanelled Bank for KYC verification. 
• The contributions towards NPS must come from either an NRE account or NRO account.
• The minimum contribution on opening the account: Rs.500.
• The minimum amount per contribution: Rs.500.
• The minimum contribution per annum: Rs.6,000.
3. Sub-Accounts
NPS accounts can be operated from any location in the country. There are two available sub-accounts under the NPS account scheme:
• Tier–I accounts: Withdrawals are allowed for up to 25% of the borrower’s own contribution. This is subject to the Withdrawal and Exit Regulations.
• Tier-II accounts: This account is allowed as an add-on to Tier–I accounts, like a savings facility. Withdrawals are permitted as and when the investor wishes from Tier-II accounts. 
4. Tax Implications
There is a deduction of up to Rs. 1.5 lakhs to be claimed for NPS – for your contribution as well as for the contribution of the employer.
• 80CCD (1) covers the self-contribution, which is a part of Section 80C. The maximum deduction one can claim under 80CCD (1) is 10% of the salary, but no more than the said limit. For the self-employed taxpayer, this limit is 20% of the gross income.
• 80CCD (2) covers the employer’s NPS contribution, which will not form a part of Section 80C. This benefit is not available for self-employed taxpayers. The maximum amount eligible for deduction will be the lowest of the below: a. Actual NPS contribution by employer b. 10% of Basic + DA c. Gross total income
• You can claim any additional self-contribution (up to Rs 50,000) under section 80CCD (1B) as NPS tax benefit. The scheme, therefore, allows a tax deduction of up to Rs 2 lakh in total.
5. Features & Benefits of NPS
• An investment portfolio is highly diversified and affords the investor the flexibility to choose in what ratio funds should be allocated across investment options.
• Investments can be made in a variety of asset classes like Equity, Corporate Bonds, and Government Securities.
• Up to 85% of the funds can be diverted to Equity, or Corporate Bonds, or Government Securities – depending on the risk appetite of the investor.
• There are two investment options:
a. Active Choice: Where the NRI investor decides the asset classes and ratios of investment.
b. Auto Choice: Where the investment will be done on behalf of the NRI investor, based on his or her age.
6. Rules for Exit and Withdrawal NPS Scheme
For exit from the scheme before the age of 60:
• Compulsory annuitization (the process of converting an annuity investment into a series of periodic income payments).: Minimum of 80%.
• Lump-Sum withdrawal: Maximum of 20%.
• If the total corpus is less than Rs.1,00,000 complete withdrawal.
For exit upon attaining the age of 60:
• Compulsory annuitization: Minimum of 40%.
• Lump-Sum withdrawal: Maximum of 60%.
• If the corpus is less than Rs.2,00,000 complete withdrawal.
• Investors can stay invested in the scheme up to the age of 70 years.
• Purchase of annuity can be deferred for a maximum period of 3 years at the time of exiting the scheme.
Exit upon the death of the subscriber:
The nominee will be instantly eligible to receive 100% of the funds in the NPS account. 

The information provided in this article is generic in nature and for informational purposes only. It is in no manner can act as a substitute for specific advice in your own circumstances. We strongly recommend you to seek professional guidance pertaining to your query or doubt.