NPS For NRIs: Who Can Invest, Tax Benefits And Withdrawal Rules Explained

The National Pension System (NPS) is open not only to resident Indians but also to eligible Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). For people living abroad but continuing to have financial ties with India, it offers a regulated, market-linked route to build retirement savings.

However, an NPS account comes with eligibility, contribution and withdrawal conditions. NRIs also need to consider how withdrawals or pension income may be taxed in the country where they live.

Who Can Open An NPS Account?

An Indian citizen, whether resident or non-resident, and an OCI can join NPS under the All Citizen Model if the eligibility conditions are met. The current joining age is 18 to 85 years. Persons of Indian Origin who are not otherwise eligible cannot subscribe, according to a recent report by Mint.

NRIs and OCIs need to complete the prescribed know-your-customer requirements. Documents generally include PAN, an Indian passport or OCI card, address proof and proof of an NRE or NRO bank account.

For NRIs and OCIs, Tier I is the relevant pension account. They are not permitted to activate a Tier II account. There is no overall upper limit on Tier I contributions, though tax deductions are subject to prescribed ceilings.

What Tax Benefit Is Available?

Under the old tax regime, self-contribution to NPS may qualify for deduction under Section 80CCD(1), within the overall Rs 1.5 lakh limit under Section 80CCE. An additional deduction of up to Rs 50,000 is available under Section 80CCD(1B).

The benefit can therefore be useful for an NRI who has taxable income in India. The actual saving, however, depends on the subscriber’s income, tax regime and eligibility for deductions.

How Do Withdrawals Work?

For subscribers under the All Citizen Model, normal exit is available on completing 15 years of subscription or attaining age 60, whichever is earlier.

If the accumulated pension wealth is up to Rs 8 lakh, the entire amount can be withdrawn. For a corpus above Rs 8 lakh and up to Rs 12 lakh, specific lump-sum and periodic payout options apply. Where the corpus exceeds Rs 12 lakh, at least 20 per cent must be used to buy an annuity, while up to 80 per cent may be taken as lump sum or through permitted periodic payout options.

There is an important tax distinction. While the pension regulator now permits up to 80 per cent lump-sum withdrawal in such cases, the income-tax exemption currently covers only up to 60 per cent of the total corpus. Any additional amount withdrawn needs to be assessed separately for tax.

Annuity purchase itself gets the prescribed tax treatment, but pension received from the annuity is taxable. NRIs should also check the tax rules in their country of residence before deciding how to exit.

FAQs

Can NRIs and OCIs open an NPS account?
Yes. Eligible NRIs and OCIs aged 18 to 85 years can join NPS under the All Citizen Model, subject to KYC and other requirements.

Can NRIs claim tax benefits on NPS contributions?
Yes. Under the old tax regime, eligible contributions can qualify for deductions under Section 80CCD, subject to prescribed limits.

Is the entire NPS withdrawal tax-free for NRIs?
No. While up to 80 per cent may be withdrawn in certain cases, the income-tax exemption currently applies only to up to 60 per cent of the corpus.