Non-Resident Indians can utilize the National Pension System (NPS) to build a retirement corpus, but with specific limitations compared to resident subscribers. According to reports from Business Standard, NRIs can open and contribute to a Tier-I NPS account while Tier-II is not available to them. NRIs can subscribe to NPS under the All Citizen Model, subject to applicable eligibility and KYC requirements, while Overseas Citizen of India (OCI) can also subscribe subject to rules applicable to OCI subscribers. However, NPS is primarily designed for retirement, so access to the accumulated corpus is subject to withdrawal and exit rules.
NRIs and eligible OCI subscribers can contribute to NPS using their NRE or NRO bank accounts, as reported by Business Standard. The choice of account matters significantly for repatriation purposes, as contributions made through an NRE account can facilitate repatriation subject to applicable foreign exchange regulations and conditions. NPS offers investment exposure across three broad asset classes: Equity (E) investing primarily in equity-market instruments with highest long-term growth potential but greater market risk, Corporate debt (C) in fixed-incomsecurities issued by companies with lower risk than equity, and Government securities (G) mainly in government securities as the lower-risk portfolio component. NRIs can select their investment mix depending on age, risk tolerance, investment horizon and retirement goals.
According to Business Standard, NPS provides two broad ways to manage asset allocation: Active Choice where subscribers decide how money is distributed across equity, corporate debt and government securities within permitted limits, and Auto Choice where allocation is adjusted automatically according to subscriber's age and selected life-cycle option. The Auto Choice options include different levels of equity exposure, ranging from aggressive to conservative, with the aggressive option allowing highest equity exposure for younger subscribers and conservative option following more cautious allocation. This can be useful for investors who do not want to monitor and rebalance their portfolio themselves.
Under the old tax regime, an employee's own NPS contribution qualifies for deduction under Section 80CCD(1), subject to prescribed limits and the overall ₹1.5 lakh ceiling under Section 80CCE. An additional deduction of up to ₹50,000 is available under Section 80CCD(1B). Self-employed individuals can also claim eligible deductions subject to applicable limits. Employer contributions can qualify for deduction under Section 80CCD(2). For employees under the new tax regime, the deduction is available for employer contribution up to 14% of salary, subject to applicable rules.
As reported by Business Standard, at retirement, NPS is designed to provide regular pension after retirement through annuity purchase rather than simply a lump-sum investment. The pension amount depends on factors such as corpus available, portion used to purchase annuity and prevailing annuity rates. For NRIs, this makes NPS particularly relevant when retirement planning involves building an income stream from assets accumulated in India. The system is intended to provide retirement income rather than simply a lump-sum investment, with NRIs having to plan around Tier-I's long-term nature rather than treating NPS as a flexible investment account.
Resident and non-resident Indians (NRIs) and overseas citizens of India can open the NPS account, provided they are 18 to 85 years of age and meet KYC requirements. The NPS account cannot be opened jointly. Under the latest PFRDA rules for the All Citizen Model, a normal exit can generally be taken after reaching age 60 or completing the applicable vesting period. Up to 80% of the corpus can be taken as a lump sum, and at least 20% is required to be used for purchasing an annuity, subject to corpus-related conditions. Currently, tax exemption on lump-sum withdrawal is available for up to 60% of the accumulated pension wealth.
