National Pension System (NPS) trust is a part of Pension Fund Regulatory and Development Authority (PFRDA). It is a voluntary-defined contribution pension system. The National Pension System is Government of India’s initiative for social security of individuals which is looked after by Ministry of Finance. NPS programme is open for everyone whether someone is a working in the public sector, private sector or even in the unorganised sectors excluding people employed in the armed forces. Main objective of this National Pension System is to encourage individuals to invest in a pension account on regular intervals during their employment period. So, that after retirement, the subscriber can get enough amounts to enjoy his life after retirement you can also take partial withdrawal if needed. NPS System holds immense value for everyone who is working in the private sector and requires a pension after his/her retirement. NPS does not get affected if you change or want to change your job, this System is portable across all the jobs you do and all the locations you move or transferred to. NPS provided retirement plan as well as tax benefits under section 80C and 80CCD. Contribution made in a NPS account is tax free up to 10% of the income with a ceiling of Rs 1.50 lakhs, Even if a employer does not have NPS facility for employees, you can still open an NPS account of your own and can claim deduction for the investments done by you in the NPS account up to Rs. 1.50 lakhs under sec. 80CCD (1) and sec. 80C, over and above these deductionsan additional claim for deduction of Rs. 50,000 can also be made under sec. 80 CCD(1B) for the purpose of your parent’s health insurance.
An NRI (Non Resident Indian) is an Indian Citizen who has not stayed in India for one hundred and eighty two (182) days. As NRIs are allowed to vote and hold public offices in India. They are also allowed to invest in NPS however OCI (Overseas Citizen of India) cannot invest in National Pension System. Investing in NPS can play a major role in reducing payable tax amount by reducing taxable income alongside providing a retirement plan. Income of the NRIs earned outside India is not taxable however incomes received in India is taxable as well as any sort of capital gains from share, mutual funds, property rentals, term deposits are also taxable if it exceeds the basic exception limit on the other hand investment or contribution made in NPS is tax free. Although tax benefits is not the only reason for investing in NPS there are some more advantages of investing in NPS such as:
- Meagre management cost of 0.01%
- 24 X 7 around-the-clock online access
- Partial withdrawal facility
- Flexible investment options
- Not affected by job change or transfers
- Not affected by change in location/residence
National Pension System comes in two different forms:
- Tier 1 also known as a pension account under which it is mandatory to invest until maturity period to avail all the benefits and the minimum amount required to open an account under tier 1 is Rs 500.
- Tier 2 which is also known as an investment account under this the amount can be withdrawn any time. The minimum amount required to open an account under tier 2 is Rs 1000.
Investment in Tier-1 NPS account will be beneficial for NRIs who want tax benefits as tier-2 NPS account does not offers any sort of tax benefits, however tier 1 NPS accounts have a lock in period which lasts until the subscriber investing in NPS turns of age 60 years, on the other hand tiers 2 NPS account does not have any lock in period but it is also ineligible for tax benefits. For investing in NPS as an NRI you age should be:
- Between 18 to 60 years of age
- Must have either an NRE (Non-Residential External) or NRO (Non-Resident Ordinary) account to contribute to the System and
- Must hold a valid Pan card.
A NPS account can be opened via both online and offline processes- for opening an online NPS account you can visit Pension Fund Regulatory and Development Authority (PFRDA) or NPS trust website and from there you can apply for eNPS. And for opening a NPS account offline you need to visit your nearest POPs (Point of Presence) registered under PFRDA. Some banks also offer the facility of opening NPS account; however for NRIs opening an online NPS account or eNPS would be more suitable. There are many NPS schemes available of which some popular ones are- National Pension Systems: HDFC Pension Fund, Kotak Pension Fund, UTI Pension Fund, Reliance Pension Fund, SBI and ICCI Pension Fund.