National Pension System (NPS) is a golden investment opportunity for NRIs who are planning to shift to India after retirement. Whether NRIs are applicable for NPS investment or not- It is look after by the Pension and Fund Regulatory & Development Authority (PFRDA).
However, they are welcome to invest in NPS but not formally as Foreign Exchange Management Act (FEMA) doesn’t have its mention. Now, Reserve Bank of India (RBI) has clarified this picture nodding NRIs investment services extended to NPS.
Understand the functioning of NPS:
NPS is the contributory pension system of collecting & accumulating its subscribers’ funds in an individual pension account called PRAN. You, as its subscriber, are to contribute up to 60 years in it. It’s opening amount is worth Rs. 6,000.
You can invest in any of these three accounts to win its membership:
- Government securities fund,
- Fixed-income instrument other than that of government security funds
- Equity fund (maximum limit in equity fund is fixed up to 50% & only through Index funds)
60% of its total contribution can be yours at the age of 60. This, you can invest in annuity product. The rest amount will be available as pension. But if you withdraw NPS before 60-year of age, its 80% investment is must in annuity. But if you are in urgent need of it, then 25% of the invested money can be withdrawn after 10 years.
It’s Tier I account is basic but its Tier II account acts as savings account with liquidity feature.
It’s simpler to open an NPS account. How?
- Visit any bank as all act as distributors for NPS.
- Open an NPS account of yours.
- Fill the registration form
- Submit the copy of your passport, Address proof in India
Your NPS account will be open when the overseas branch of the bank will complete its Know-your- customer (KYC) process. Thereafter, your permanent retirement account number will be sent to you. Your NPS account is portable too.
Why should you invest in NPS?
- It requires low investment.
- Just 0.01% is charged as its management charge.
- 3% expense ratio is charged on mutual funds
- 35% is deducted as fund management charge for unit-linked insurance.
- It qualifies for Tax reduction under Section 80CCD of Income Tax Act.
- If NRIs invest 10% of the total income, then tax deduction will be of Rs 1.5 lakh.
- More than aforesaid investment will be eligible for more tax deduction up to Rs. 50, 000 more.
Migrants should remember that the rest 60 % NPS amount is taxable. You can draw it out on maturity. Even, the annuity is taxable too.