NRIs and OCIs can invest in NPS, but tax benefits depend on Indian income and the tax regime chosen
Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) can use India’s National Pension System (NPS) to build a retirement corpus, but the tax advantages and withdrawal rules differ from those applicable to some resident investors.
The NPS, regulated by the Pension Fund Regulatory and Development Authority (PFRDA), allows eligible NRIs and OCIs to subscribe under the All Citizen Model. They can open a Tier I account by completing the required KYC formalities and providing documents including a PAN, passport or OCI card, address proof and an NRE or NRO bank account.
The permitted entry age is 18 to 70 years. However, NRIs and OCIs cannot activate a Tier II NPS account, which normally offers greater withdrawal flexibility. As a result, NPS for NRIs is primarily a long-term retirement investment.
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Tax benefits are also linked to an individual’s Indian tax position
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Under the old tax regime, eligible contributions to Tier I can qualify for deductions under Section 80CCD, including an additional deduction of up to Rs 50,000 under Section 80CCD(1B)
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This can take the potential NPS-related deduction to Rs 2 lakh when combined with the applicable Rs 1.5 lakh limit under Section 80C and related provisions, subject to eligibility
The benefit may be of limited value to NRIs with no taxable income in India. Most individual contribution-related deductions are also unavailable under the new tax regime.
Withdrawal rules have become more flexible. Under the revised framework, normal exit generally allows up to 80 per cent of the corpus to be withdrawn as a lump sum, with at least 20 per cent allocated to an annuity. Premature exit remains more restrictive, generally limiting lump-sum withdrawal to 20 per cent.
Annuity income received later is taxable in India, while the NRI’s country of tax residence and applicable tax treaty may also affect the final tax liability.
For NRIs, NPS can therefore provide disciplined retirement savings, but its tax benefits, liquidity restrictions and cross-border tax implications should be assessed before investing.
