Retirement planning for NRI and NPS

An NRI can invest in NPS (National Pension System) as per Reserve Bank of India (RBI) guidelines. NPS will allow NRIs to invest in a mix of equities, debt and save for their retirement.NPS is open to any NRI, between 18-60 years complying with KYC norms.  PIOs/ OCIs are not eligible. Source of Contributions in NPS should be from NRE of NRO Account. The minimum Contribution at the time of account opening is Rs.500/- and it is the minimum amount per contribution. The annual minimum contribution amount is Rs.6000/-.

NPS offers two investment choices such as Active and Auto for its subscribers. Judicious mix of investment instruments and asset classes like Equity (E), Corporate Bonds (C) and /or Government Securities (G) ensures minimal impact on the returns on subscriber’s contributions even if there is a market downturn. The individual subscriber has a choice of selecting investment mix (E,C,G), as per his/her risk appetite. Under Active Choice, NRI would decide asset classes in which the contributed funds are to be invested and their respective proportions. Auto choice is the default investment choice under NPS, management of investment of funds is done automatically based on the age profile of the subscriber.

A subscriber can exit from National Pension System upon attaining the age of 60 years. The minimum annuitisation is minimum 40% and the Lump sum maximum withdrawal is 60% of Corpus amount. If Corpus< Rs. 2.00 Lac, complete withdrawal is permitted. Subscriber can stay invested in the National Pension System up to the age of 70 years. Fresh contributions are allowed during such a period of deferment. The subscriber may even defer the withdrawal of eligible lump sum amount till the age of 70 years. Annuity purchase can also be deferred for maximum period of 3 years at the time of exit.

The subscriber can exit from National Pension System before attaining the age of 60 years. In this scenario, the compulsory minimum annuitisation is 80% of Corpus and the lump sum withdrawal is maximum of 20% of Corpus amount. If Corpus< Rs.1.00 Lac, complete withdrawal is allowed subject to the relevant guidelines. Upon Death of the Subscriber, option will be available to the nominee to receive 100% of the NPS pension wealth in lump sum.

In the past 10 years, the average returns from NPS have been around 10 per cent. NPS is a long-term product and very cost-effective. NRIs can build a good corpus and also repatriate the money easily. They can also get benefit of the additional income tax exemption of Rs 50,000 over and above the instruments under 80C of Income Tax Act, 1961. The additional tax exemption can be useful for NRIs who have investment income in India. For instance, interest earned on NRO accounts attracts taxes according to the income bracket. And, it is essential to maintain an NRO account if you have rental or dividend income or any income in India.

NPS is largely targeted at NRIs in Gulf countries because many of them don’t have option to settle in those countries after retirement. They have to come back to India after 30-35 years of working life. So, they can use NPS to build a retirement corpus. If NRIs in the USA or any other countries who plan to settle down there after retirement, NPS does not make sense. They will have to disclose the investment and the annuity under FATCA (Foreign Account Tax Compliance Act). It is more suitable for NRIs in the Gulf countries because they are not subjected to any kind of tax as of now.

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