The NRI diaspora often looks for the best investment opportunities in India. It probes about what, when, where, how and how many lingering benefits, such as return on investment, it brings along with. Certainly, the NRIs thoughts stick around tax reduction and income through interest.
This article is enriched with some wise tax saving and investment alternatives for young investors. Let’s kick off understanding what the NPS account is and why non-residents should prefer it over other investment options.
NPS Account: What?
The acronym NPS expands for National Pension Scheme. This scheme aimed at inciting interest for investment in India by the resident and non-resident diaspora. It ensures foreign income deposition in India along with additional tax benefits.
Are NRIs eligible to open an NPS account?
The NRIs can easily enroll for this pension scheme, as they are eligible. Like other permanent natives, the emigrants with Indian passport can claim for the lingering leverages, including tax reduction.
As far as the age is concerned, any resident or non-resident who is in between 18 years and 60 years of age can undergo the NPS formality. It’s worth mentioning that the Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs) cannot be a part of this scheme.
Also, this scheme is valid for individual non-residents. There is no provision of opening a joint account.
Everything you want to know about fund transfers and account:
Since it’s a pension account, you can start saving with just INR 500 as aforementioned. The payment should be made by a cheque. The transfer of funds should be routed through a non-resident external account (NRE) or non-resident ordinary account (NRO). The only difference is that the former is a repatriable resident account whereas the latter is non-repatriable one.
The investor can desirable amount of INR 500. It means that the saving could be limitless, as there is no preset upper limit in this scheme.
Tax Benefits:
1. How much can you pay?
The NPS account holders can claim tax deduction up to 10 percent of gross income under Section 80 CCD (1). The ceiling amount is up to 1.5 lakh per year under Section 80 CCE.
2. How much exemption do you get being an NRI?
The scheme provides an additional annual exemption worth INR 50,000 every year (Tier 1 account). The Section 80 CCD (1B) of the Income Tax allows exemption, if your annual income is over and above INR 1.5 Lakh.
3. How much can you derive benefit from this scheme?
Those who have been subscribed as a Corporate Subscriber, u/s 80CCD (2) of the Income Tax Act are legally eligible for claiming extra benefits.
4. Tax Benefit for the Corporate Subscriber:
The contribution from an employer to benefit employee upto 10 percent of salary (Basic + DA) is deductible from taxable income without any monetary limit.
5. Tax Benefit for the Corporates:
The contribution by employer towards NPS up to 10 percent of salary (Basic + DA) can be deducted from the profit and loss account.
6. Tax Benefit on Partial Withdrawal:
The investor is allowed to withdraw a certain amount from NPS Tier 1 account before 60. If the withdrawal is up to 25 percent of the subscriber contribution, the amount will be exempt from tax.
7. Tax Benefit on Annuity Purchase:
If the account holder invests in an annuity with NPS amount, the whole amount will be exempt from the tax. But, there annuity income earned in the trailing years will be a subject to pay tax.
8. Tax Benefit on Lump Sum Withdrawal:
If the NPS account holder reaches 60 years of age, he should pay tax on 60 percent of the total corpus withdrawal amount. The rest amount shall be tax free.
How can they open this account online?
The emigrant Indians can open this pension account sans any glitches. Here is the way to open this account:
- Go to the “National Pension System Trust” or PFRDA website.
- Out of the three options, select New Registration (if you’re opening it for the first time).
- Enter your PAN card number along with other personal details.
- As you submit, an acknowledgement number will pop up. Save it for later use.
- Now, enter the bank details in the next step.
- Click “Save and Proceed”.
- Decide among four available allocations, i.e. Equity Funds (for saving upto 50% of your money), an Alternative Investment Fund (for putting not more than 5 % of your money), Government Security Fund and a Corporate Bond Fund.
- Follow up by filling nominee details.
- Upload a cancelled cheque of your account, a photograph and a specimen of your signature.
- Start by depositing at least INR 500.
- Upon successful payment, a Permanent Retirement Account Number (PRAN) will be generated with a receipt.
- Once you’re done with the online formalities, you need to print the form. Stick a photograph and affix signature.
- Go to the Central Recordkeeping Agency (CRA) for verifying your account details.
- The CRA will verify and activate the PRAN number.
What should you have to open this account in India?
1. Mobile number
2. An email id
3. An active bank account with netbanking facility
4. PAN Card
What if the NRIs want to exit from the NPS investment prematurely?
If the NRI draws out before maturity (before 60 years of age), minimum of 80 percent will be annuitized. He can withdraw only the balance amount in the lump sum. If the corpus is less than 1 lakh, he can withdraw the pan amount.
If the NRI dies, the nominee will be able to acquire 100 percent of the corpus amount in a lump sum.
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