The National Pension Scheme (NPS) is a retirement-driven savings scheme that offers the opportunity to earn market-linked returns on investments, allowing individuals to build an inflation-adjusted corpus to meet their financial needs post-retirement.
This scheme requires regular contributions until maturity, and upon reaching maturity, it assures the payment of guaranteed pensions for life, ensuring a steady source of income during retirement.
The NPS scheme is not limited to Indian residents alone; it is also open to Non-Resident Indians (NRIs) who wish to plan for their retirement. To invest in the NPS scheme, NRIs must meet certain basic eligibility criteria, which include the following:
Eligibility: NRIs are eligible to invest in the NPS scheme if they hold an Indian citizenship, regardless of their residency status.
NPS Account: NRIs need to open an NPS account to start investing in the scheme. This account can be opened either on a repatriable or non-repatriable basis, depending on the NRI’s preference and the funds they wish to repatriate to their home country.
KYC Compliance: NRIs must comply with the Know Your Customer (KYC) norms and provide the required documents, such as a copy of their passport, overseas address proof, and a valid Indian bank account, among others.
Investment Options: NRIs can choose from the various investment options available under the NPS scheme, including equity, corporate bonds, government securities, and alternative investment funds (AIFs). These options offer flexibility and allow NRIs to align their investment strategy with their risk appetite and financial goals.
Tax Benefits: NRIs investing in the NPS scheme can avail tax benefits similar to Indian residents. Contributions made towards the NPS are eligible for deductions under Section 80CCD(1) of the Income Tax Act, up to a specified limit. Additionally, the scheme provides an additional tax benefit under Section 80CCD(2), wherein employer contributions are also eligible for deduction.
How to invest in an NRI pension scheme?
Investing in an NRI pension scheme, such as the National Pension Scheme (NPS), requires following certain steps and fulfilling specific criteria. Here’s a guide on how to invest in an NRI pension scheme:
- Visit the official NPS website which is and navigate to the NRI section or eNPS portal.
- Register as an NRI subscriber by providing the necessary personal and contact details.
- Select a Point of Presence (PoP) service provider from the available options.
- Complete the Know Your Customer (KYC) process by submitting the required documents for verification, which may include proof of identity, address, and citizenship.
- Make the initial contribution to activate your NPS account. The minimum contribution amount may vary.
- Choose an investment option and asset allocation strategy based on your risk profile and investment goals.
- Scan your documents, including proof of identity, proof of address, and proof of citizenship, as per the guidelines provided by the NPS or the designated platform. b. Ensure that the scanned copies are of high quality, legible, and meet the specified file format and size requirements, such as PDF, JPEG, or PNG.
- After completing the online form and uploading the documents, review all the entered information for accuracy. b. Print a copy of the completed form, ensuring that it reflects all the provided details accurately. c. Sign the printed form with your signature, ensuring it matches the signature on your official identification documents.
- To avoid any issues, ensure that the signed and completed form is sent to the Central Recordkeeping Agency (CRA) within 90 days of registering for the NPS scheme. The address and specific instructions for sending the form will be provided by the NPS or the designated platformAccount Activation
- The CRA will process the submitted form and verify the provided details against the uploaded documents. Once the verification is completed, your NPS account will be activated, and you will receive the Permanent Retirement Account Number (PRAN) and other relevant account information.
- It is crucial to adhere to the 90-day submission deadline. Failure to send the signed form within this period may result in the freezing of your NPS account. To avoid any inconvenience or complications, ensure timely submission of the signed form to keep your NPS account active.
Advantages and disadvantages of NPS scheme
Advantages of NPS Scheme:
- Expert Fund Managers: One of the notable advantages of the NPS is that the funds are managed by qualified and experienced fund managers under the supervision of the PFRDA. This ensures professional management of investments and potentially higher returns.
- Attractive Returns: The NPS Tier 2 account provides the opportunity for significant long-term growth, leading to substantial retirement savings. The Tier 1 funds also contribute to the pension corpus. By investing a portion of funds in the equity market, the NPS has the potential to generate higher returns compared to other retirement savings options such as the Employee Provident Fund (EPF).
- Robust Regulations: The NPS is subject to stringent regulations, ensuring investor protection and safeguarding their interests. This regulatory framework enhances the security of investments, providing subscribers with peace of mind and confidence in the scheme.
- Portability: The NPS is a portable scheme, allowing subscribers to maintain their accounts even if they change jobs or locations. The unique Permanent Retirement Account Number (PRAN) and NPS CRA login credentials remain active, facilitating seamless continuity of the investment journey.
- Tax Benefits: NPS account holders can enjoy tax exemptions under various sections of the Income Tax Act. Section 80CCD (1B) provides additional tax benefits, while Section 80C allows deductions for salaried individuals. Self-employed individuals can also claim tax exemptions under Section 80CCD (1) by investing a percentage of their gross annual income.
Disadvantages of NPS Scheme:
- Limited Investment Options: The NPS primarily offers a choice between active and auto investment options, which may limit the investment flexibility for some individuals seeking more diverse investment avenues.
- Market Volatility: As the NPS invests a portion of funds in the equity market, the returns are subject to market fluctuations. This means that the value of investments can rise or fall based on market conditions, potentially impacting the overall corpus.
- Compulsory Annuity Purchase: At least 40% of the accumulated NPS corpus must be used to purchase an annuity, providing a regular pension income after retirement. This mandatory annuity purchase limits the flexibility of withdrawing the entire amount as a lump sum, which may not align with the preferences of some retirees.
- Withdrawal Restrictions: While partial withdrawals are permitted under specific circumstances, premature withdrawal before the age of 60 is subject to limitations and penalties. This may restrict access to funds in times of financial emergencies.
- Uncertainty in Returns: Despite the potential for attractive returns, the actual returns on NPS investments are market-dependent and may vary over time. The performance of the investment portfolio is influenced by market conditions and the fund manager’s expertise.