NPS for NRIs: Eligibility, tax savings, account rules and withdrawal benefits explained
The National Pension System (NPS) can help Non-Resident Indians (NRIs) build a long-term retirement corpus under India’s structured pension framework.
The NPS permits subscribers to invest systematically in a mix of government securities, corporate bonds, equities, and other similar asset classes to create a financial corpus that can serve as a solid retirement fund.
Furthermore, NRIs can open an NPS account, but they must meet the basic eligibility requirements. However, only Indian citizens who are residing abroad, along with Overseas Citizens of India (OCIs), are permitted to make investments. Currently, Persons of Indian Origin (PIOs) are not permitted to subscribe to the NPS.
Having a clear understanding of these aspects is essential to planning investments. The basic details of eligibility are discussed below:
|
Particulars |
Details |
|---|---|
| Eligible investors | NRIs and OCIs |
| Age limit for joining | 18 to 70 years |
| Required bank account | NRE or NRO account |
| Mandatory account | Tier I NPS account |
| Tier II account availability | Not allowed for NRIs |
| Maximum tax deduction | Up to ₹2 lakh annually under the old tax regime |
NPS investment rules and tax advantages for NRIs
To open an NPS account, NRIs must complete KYC requirements, including submission of a valid Indian passport, address proof and other prescribed documents. Contributions can be made through an NRE or NRO bank account.
The Tier-I account is the primary retirement account and offers tax benefits, while withdrawals are regulated to ensure long-term savings. NRIs cannot currently open a Tier-II NPS account, which is a voluntary savings option available to resident subscribers.
Under the old tax regime, NRIs can claim deductions on NPS Tier-I contributions. A deduction of up to ₹1.5 lakh is available under Section 80C, while an additional deduction of ₹50,000 can be claimed under Section 80CCD(1B). This allows eligible NRIs to reduce taxable income in India by up to ₹2 lakh annually, particularly on income such as rent, capital gains or other taxable sources.
Withdrawal rules and retirement benefits under NPS
NPS investments follow the EEE – Exempt-Exempt-Exempt – structure under the Indian income tax laws. Once the NRI investor reaches age 60, they can withdraw up to 60% of their accumulated corpus as a lump sum without tax liability in India. Do keep in mind that the remaining 40% must be utilised to purchase an annuity, and the pension income that is received from this annuity is taxable as per the individual applicable tax slabs.
Now, if an NRI exits before turning 60, only 20% of the entire corpus can be withdrawn, whereas 80% of the remaining corpus must be invested in an annuity. Further, upon the completion of three years, partial withdrawals of up to 25% of the total contributions are permitted for individuals to meet specific needs such as children’s education, medical treatment or marriage-related expenses.
In the unfortunate event of a subscriber’s death, the entire NPS corpus is transferred to the ‘nominee’ and remains exempt from tax in India. Still, NRIs should also acknowledge and consider the tax rules of their country of residence, as annuity income or any associated withdrawals may have different implications abroad, depending on the taxation rules and regulations of the respective country.
The NPS can help eligible NRIs adopt a disciplined, dedicated, and tax-efficient approach to planning for retirement while ensuring financial security across borders.
Disclaimer: This article is for informational purposes only and is not financial or tax advice. NPS rules and benefits are subject to change. Readers should consult a qualified advisor before making investment decisions.
