If you’re an NRI looking for tax saving investment options in India, you might know about the National Pension System (NPS). But is it really worth your attention? Can you, as an NRI, actually invest in it? And how does it compare with other traditional investment choices when it comes to returns and tax benefits?

Here's everything you need to know about NPS as an NRI.

Meaning of NPS?

The National Pension System (NPS) is a government-backed retirement savings scheme. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It’s designed to help individuals build a corpus for retirement while enjoying certain tax benefits.

Here, your money is managed by professional fund managers. They are allocated into a mix of equity, corporate bonds, and government securities. This is done based on your risk preference.

​​Upon retirement, you can withdraw 60% of the corpus as a lump sum, while 40% must be used to buy an annuity for pension income.

Can You, as an NRI, Invest in NPS?

Yes, you can. NRIs aged between 18 and 60 years can make investments in NPS Tier-I accounts. You must meet all the KYC norms and hold an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account. Here are a few other important things you need to know:

• Only Indian citizens are eligible to invest in NPS.
• Currently, Overseas Citizens of India (OCIs) cannot open an NPS account as per current regulations.

However, the PFRDA has approved a proposal to allow OCIs to invest in NPS just like NRIs. The final step now lies with the RBI, which needs to update FEMA rules before it becomes official.

For example, you’re an Indian citizen and work in the UAE. Then, you can easily start investing in NPS today. But if you’ve taken foreign citizenship and hold an OCI card, you’ll need to wait until RBI officially allows it.

However, if you ever return to India, you can continue your NPS account just like any resident Indian.

How will NPS Benefit you as an NRI?

NPS offers several advantages for NRIs looking to secure their financial future:

Diversified Investment Options

You can choose between equity, corporate bonds, and government securities or opt for an "Auto Choice" where investments are managed based on your age profile.

Customisable Portfolio

If you prefer active management, you can decide the allocation of funds across asset classes based on your risk appetite.

Low Investment and Management Costs

Start with as little as ₹500 for Tier I (mandatory) and ₹1,000 for Tier II (optional). There’s no fixed number of contributions. Thus, you have the freedom to invest as often as you like. Fund management charges are extremely low, ranging from 0.01% to 0.1% annually, which helps you save more in the long run.

Long-Term Wealth Accumulation

NPS will help you build a retirement corpus over time with regular investments. Returns are market-linked, which means your money has the potential to grow faster than inflation.

At retirement, you can withdraw a portion and use the rest to get a steady pension through annuity plans. This gives you financial stability during your retirement years. You can also use an NPS pension calculator to estimate your future pension right now.

Flexibility in Contributions

You can choose how your money is invested. This is based on your risk level as well as financial goals. Change your fund allocation and fund manager once every year if needed.

Get partial withdrawals for specific needs like medical emergencies or education. You can also manage and operate your NPS account completely online. 

What are the Tax Benefits for NRIs Investing in NPS?

One of the key reasons NRIs consider NPS is for tax saving investments. Here’s how it works:

Section 80C Deduction

By investing in NPS, you can claim up to ₹1.5 lakh under Section 80C of the Income Tax Act. This is part of the total 80C limit. So, it includes other investments like ELSS, PPF, etc.

Additional ₹50,000 Deduction – Section 80CCD(1B)

This is over and above the 80C limit. NPS is the only tax-saving investment that qualifies for this additional deduction. It gives you a total deduction of ₹2 lakh.

However, you should note that these deductions are available for only the old tax regime. The deductions are not available under the new tax regime.

Tax-Free Withdrawals

At maturity, 60% of the NPS corpus is tax-free. The remaining 40%, used to purchase an annuity, is taxable as per your income slab in the year of annuity receipt.

How can you, as an NRI, open an NPS Account?

Here’s how you can do it:

Offline Process

• Visit a Point of Presence-Service Provider (POP-SP) in India.
• Submit a completed subscriber registration form. This should include your copy of the PAN, cancelled cheque, passport, address proof, and photograph along with the application.
• Make the initial contribution of ₹500 for the Tier I account and Rs. 1000 for the Tier II account.
• The POP will review your application and the documents.
• You will be issued a Permanent Retirement Account Number (PRAN).

Online Process via eNPS:

Go to the PFRDA/NPS Trust website and select "eNPS."

• Choose "New Registration" and select "Non-Resident Indian."
• For the account type, choose between repatriable and non-repatriable.
• Register using your PAN and provide your details, including passport, residence, and bank details.
• Upload scanned copies of your passport, PAN, photo, signature, and cancelled cheque.
• Make a minimum payment of ₹500 for Tier I or ₹1,000 for Tier II using the available payment gateways.
• Print, sign, and send the completed form to the Central Record Keeping Agency (CRA) within 90 days.

Note: If CRA doesn't receive your signed form within 90 days, your account will be frozen.

Key Points You Should Consider Before Investing

Before diving into NPS as an NRI, keep these factors in mind:

Withdrawal Rules

Upon turning 60, you must use at least 40% of your corpus to purchase an annuity. You can withdraw only 60% as a lump sum. An early exit requires annuitisation of 80% of the corpus. If the total corpus is less than ₹1 lakh, a full withdrawal is allowed without an annuity.

Investment Risks

While equity investments offer higher returns, they come with market risks. Assess your risk tolerance before choosing your portfolio mix.

Tax Implications Abroad

Check whether contributions or withdrawals from NPS are taxable in your country of residence.

Repatriation Rules

Ensure you understand how accumulated savings or annuities can be repatriated under FEMA guidelines.

No Joint Accounts

You cannot open a joint account under NPS; only individual accounts are allowed.

Final Thoughts

NPS is absolutely worth considering if your goal is to create a disciplined retirement fund while benefiting from tax saving prospects. Whether you're planning to return to India or maintain ties abroad, investing in NPS ensures financial security during retirement.

Start early and make informed decisions about asset allocation and contributions. Your future self will thank you!