Pension

Now, Overseas Citizens of India can invest in NPS

Up until now OCIs could not invest in the National Pension System or NPS. PFRDA, through a circular issued on October 29, has said that OCIs can now invest in NPS tier 1 accounts. This is good news as NPS offers various tax benefits.

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By Preeti Motiani

The Pension Fund Regulatory and Development Authority (PFRDA) has added one more category of investors who can invest in the National Pension System. Through a circular issued on October 29, PFRDA has stated that now Overseas Citizen of India (OCIs) can enrol to invest in NPS tier-1 accounts. This is good news for OCIs as NPS offers various tax benefits.

According to the circular, ” Considering the requests received from different sections, the Authority has decided to permit Overseas Citizen of India (OCI) to enrol in National Pension System at par with Non-Resident Indians (NRI) subscribing to NPS. However, the option of NPS Tier-II account will not be available for both NRI and OCI subscribers.”

Prior to this, OCIs could not invest in NPS. In a PFRDA circular from May, 2015, it was stated that Hindu Undivided Family (HUFs), OCIs and Persons of Indian Origin were not allowed to invest in NPS.

Alok Agarwal, Partner, Deloitte India says, “Overseas Citizens of India (OCI) will now be allowed to invest into NPS-Tier-1 account (which was already allowed for Non-resident Indians). This is a welcome move for OCIs as there are many individuals of Indian origin who have taken up foreign citizenship while working overseas and may prefer to continue investing in India from their local income sources. Some OCIs have also returned to India permanently while continuing to maintain their foreign citizenship. As these individuals did not retain India citizenship and therefore did not qualify as NRIs, they were not allowed to invest in NPS. With this relaxation, such OCIs will be able to take advantage of the NPS investment avenue and associated income tax benefits. Repartiation of the accuulated savings/annuity from the NPS Tier-I account to a bank account outside India will be governed by the relevant provisions of the Foreign Exchange Management Act.”

PFRDA’s most recent circular follows a government notification dated October 17, 2019 which said: ” A NRI or an OCI may subscribe to the National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such person is eligible to invest as per the provisions of the Pension Fund Regulatory and Development Authority Act. The annuity/accumulated saving will be repatriable'(Schedule III (4) of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 .”

Who is an Overseas Indian Citizen?
According to Ministry of External Affairs website, an OCI is “A foreign national, who was eligible to become citizen of India on 26.01.1950 or was a citizen of India on or at any time after 26.01.1950 or belonged to a territory that became part of India after 15.08.1947 is eligible for registration as Overseas Citizen of India (OCI). Minor children of such person are also eligible for OCI. However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he/she will not be eligible for OCI.”

What is NPS tier 1 account?
NPS is a government sponsored pension scheme which allows its subscribers to contribute regularly during their working life. The subscribers at the time of retirement can withdraw the money in the form of lump sum withdrawal or annuity payments.

To invest in NPS scheme, it is mandatory for the subscriber to open Tier-I account. On the other hand, Tier-II account is optional. The NPS in turn invests subscribers’ money in various asset class such as equity, debt and so on.

According to the government notification over 3.18 crore individuals have subscribed to the NPS and Atal Pension Yojana as on October 26 with Rs 3,79,758 crores of total assets under management under the schemes. More than 66 lakhs government employees have been enrolled under NPS and 19.2 lakhs subscribers have subscribed to NPS in the private sector with 6,812 entities registered as corporates.

Tax benefits of investing in NPS
At the time of investing in Tier-I account of NPS, one can claim additional tax benefit of Rs 50,000 which is over and above the Section 80C tax benefit of Rs 1.5 lakh, currently.

Similarly at the time of maturity, the entire 60 per cent withdrawal from the scheme is exempted from tax. The remaining 40 per cent of the lump sum amount is used to buy annuity plan.

The Economic Times

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