1. Can NRIs Continue Investing in NPS?

Everything You Need to Know

Managing Your NPS Account as an NRI or OCI: Key Rules and Updates

Once you relocate abroad, handling your Indian investments becomes a vital part of
your overall financial strategy—especially your retirement savings. A common
question among NRIs is whether they can continue contributing to the National
Pension System (NPS) after their residency status changes. The answer is yes—but
with a few caveats.

What Changes After Moving Abroad?

NRIs and OCIs can still invest in NPS, but certain compliance steps are necessary.
According to Naisar Shah, Director at PR Bhuta & Co., Chartered Accountants,
contributors must update their KYC status in the NPS system. Importantly, future
contributions must be routed through NRE or NRO accounts—funding through FCNR
accounts isn’t permitted.

If you had a corporate NPS account while working in India, moving abroad doesn’t
invalidate it. You can request to convert it into the "All Citizens" model, which allows
you to continue as an individual investor. In some cases, employers may handle this
transition automatically.

However, those transitioning to Overseas Citizen of India (OCI) status face a different
situation. Since OCI implies a change in citizenship, NPS guidelines require closure
of the existing account and opening a new one under the OCI framework.

Tax Benefits and Withdrawal Rules

NRIs earning income in India—such as rent or dividends—can still avail tax
deductions under the old tax regime:

₹1.5 lakh under Section 80CCE

An additional ₹50,000 under Section 80CCD(1B)

These benefits are only available if you're filing an Indian tax return. Under the new
tax regime, deductions related to employer contributions aren’t available to NRIs.

Returns from NPS are not taxed in India until they are withdrawn. But taxation might
apply in your country of residence, so it’s important to consider both jurisdictions.

At maturity:

You can withdraw up to 60% of the corpus tax-free in India under Section 10(12A).

The remaining 40% must go into an annuity, whose income is taxed based on Indian
slab rates.

In cases of premature withdrawal, rules are consistent for residents and NRIs:
 Up to 20% can be withdrawn as a lump sum

At least 80% must be used to buy an annuity

For NRIs, TDS (Tax Deducted at Source) applies on both the lump sum and annuity
payouts.

Operational Guidelines for NRIs

To keep your NPS account active, you need to contribute a minimum of ₹1,000
annually. Even if your account is temporarily frozen due to non-payment, your
investments will still grow.

Annuity income will be credited to your NRO account, from where you can remit
funds overseas. This process will require a Form 15CB from a chartered accountant
and must adhere to RBI guidelines.

Your PRAN (Permanent Retirement Account Number) remains valid regardless of

your location. You can manage your NPS account entirely online—including
switching models, changing nominees, or reallocating funds—via platforms like
NSDL or KFintech.

Unsure About Returning to India?

If you're not certain about retiring in India, diversifying your retirement savings
between India and your current country of residence might be wise. According to
Vishal Dhawan of Plan Ahead Wealth Advisors, mutual funds or foreign retirement
plans might offer greater flexibility for those who plan to live abroad permanently.

Kurian Jose, CEO of Tata Pension Fund, emphasizes that the real decision point is
whether you’ll settle back in India. If you won’t, and you take on OCI status,
eventually you’ll need to repatriate your assets in line with Indian regulations.

For NRIs, the NPS remains a disciplined and tax-friendly retirement vehicle. But
keeping up with KYC rules, tax compliance, and repatriation norms is essential to
fully benefit from it while living abroad.

2. How NRIs Have More Freedom in NPS Than Indian Bank Employees—And Why
It Matters

If you're an NRI investing through the National Pension System (NPS), you may not
realize just how much freedom you actually have—especially compared to public
sector bank employees back in India. While you can choose your own pension fund
manager and control your equity allocation, lakhs of government bank employees
remain stuck in low-yielding schemes with no flexibility.

And the consequences? They're losing out on potentially crores of rupees in

retirement wealth.
 Why Indian PSB Employees Are Losing Out
In India, employees of several public sector banks (PSBs) such as SBI, Bank of
Baroda, and others are mandated to invest only through SBI Pension Funds Pvt.
Ltd.—a fund that has historically posted the lowest returns among all NPS
managers.

As of May 2025, SBI Pension Funds' returns were:

● Just 2.09% over the past 1 year

● 13.34% over 3 years

● 19.78% over 5 years

Meanwhile, NRIs investing through more aggressive fund options like DSP, Kotak, or
UTI have had access to far better returns, some exceeding 24% over 3 years.

The Policy Bottleneck

This disparity is rooted in red tape. Though the PFRDA allowed government
employees to choose any fund manager starting April 2019, most PSBs didn’t
adopt this reform. Only four—Bank of India, Indian Bank, Indian Overseas Bank,
and Union Bank—have offered their staff the same level of choice that you, as an
NRI, already enjoy.

This lack of flexibility keeps employees trapped in schemes with low equity
exposure (capped at 15%), limiting their potential for long-term growth. Some have
reported being stuck with returns of under 10%, while their peers in insurance or
regulatory bodies can aim for 14% or more, simply because they can increase equity
allocations.

NRIs: The Unexpected Winners?

Ironically, the NPS corporate model available to NRIs gives more freedom than
what many Indian government employees get:

● You can select any of the 11 fund managers

● You can customize your asset allocation between equity, corporate bonds,
and government securities

● After one year, you can switch fund managers

This autonomy allows you to optimize for growth or safety depending on your
financial goals—something PSB employees are still fighting for.

What This Means for You

If you're an NRI, you're in a fortunate position when it comes to NPS:
 ● You can actively monitor and switch funds for better performance

● You’re not tied to a legacy institution like SBI Pension Funds

● You’re not stuck in default conservative allocations

But the situation also highlights a broader issue of fairness and reform. PSB
employees are effectively penalized for systemic inertia, despite contributing
regularly to the same retirement system.

A Call for Reform

This situation is slowly changing—some PSBs have already loosened restrictions.
But much of the progress depends on employee pressure and regulatory
willpower.

As an NRI, you may want to stay informed and engaged with NPS policy
developments. The landscape is evolving, and what is true today might shift
tomorrow—especially as the line between Indian residents and NRIs continues to
blur in the context of financial systems.

While NRIs enjoy more freedom and potentially better returns in NPS today, it’s
important to recognize the larger picture: outdated policies are still holding back
millions of investors in India. As you take advantage of your flexibility abroad, this
might be a moment to appreciate the opportunity—and advocate for broader change
that benefits all NPS participants.

3. NPS in India Is Evolving—What NRIs Need to Know About the Future of

Pension Planning

India's Pension Reforms Are Accelerating—Here’s What NRIs Should Know

As India grapples with a rapidly ageing population and longer life expectancy, the
role of structured retirement planning is gaining national urgency. At the 2025 Mint
BFSI Summit, Deepak Mohanty, Chairperson of the Pension Fund Regulatory and
Development Authority (PFRDA), laid out the roadmap for expanding the National
Pension System (NPS)—a system many Non-Resident Indians (NRIs) already invest
in.

But while India’s domestic pension adoption is still catching up, NRIs may find
themselves better positioned to leverage NPS—and here’s why it matters.

The State of NPS in India

Originally launched in 2004 for government employees, NPS was expanded to:
 ● Private sector employees (corporate model)

● All citizens (since 2009)

● Minors, via the recently launched NPS Vatsalya (2024)

Despite this broad coverage, NPS adoption in India remains modest:

● Only 25% of surveyed Indians consider retirement savings, per RBI & NCFE

● India’s per capita income is about $2,500, limiting affordability

● Most workers are in the informal sector, lacking employer-sponsored

pensions

Meanwhile, the NPS has delivered strong historical returns:

● Equity Tier I schemes: ~13.2% CAGR since inception (as of early 2025)

● Government employee schemes: ~9.5% CAGR

What This Means for NRIs

As an NRI, you can legally invest in NPS (if you hold an NRE or NRO account). The
scheme allows for:

● Up to ₹1.5 lakh deduction under Section 80CCE

● An additional ₹50,000 under Section 80CCD(1B) — if you're still filing tax

returns in India

● Online account management from abroad via NSDL or KFintech

● Contributions only through NRE/NRO (not FCNR) accounts

You also benefit from the "All Citizens" model, which gives you the freedom to:

● Choose from 11 pension fund managers

● Decide your own asset allocation (up to 75% in equity)

● Switch fund managers once a year

These flexibilities are still not fully available to all domestic government bank
employees—as shown in another recent Mint report.

What’s NPS Vatsalya? And Can NRIs Use It?

NPS Vatsalya, launched in 2024, allows minors to open NPS accounts. Though this
was created with Indian families in mind, NRIs can open NPS accounts for their
children (as long as the child is a resident Indian and meets the documentation/KYC
norms).

This scheme highlights NPS’s transformation into a family-based retirement solution,

where contributions can begin at birth and compound over decades.

Global Context: Why This Matters to You

Globally, pension assets account for ~43% of all investment assets under
management. In India, this figure is only about ₹50 trillion (~$600 billion)—but it's
growing. As the country pushes toward upper-middle-income status (projected by
2030s), NPS adoption and returns could accelerate, especially with:

● Rising financial literacy campaigns

● Policy clarity and digitization

● Inclusion of wider demographics (like self-employed or minor investors)

Takeaways for NRIs

● NPS is one of the few long-term Indian investments you can actively
participate in from abroad.

● You have greater freedom than many domestic investors—flexible asset

allocation, fund manager choice, and digital account control.

● Returns have historically been strong, especially for equity allocations.

● If you file taxes in India, you can still claim deductions under Section 80C and
80CCD(1B).

● You can start building a retirement corpus in India—for yourself or even for
your children.

India is rethinking its retirement ecosystem, and NRIs can play an active role in this
transformation. Whether you're planning to return to India someday, want to keep
part of your corpus in INR, or simply diversify across jurisdictions, NPS offers a
disciplined, regulated, and tax-efficient tool to secure your long-term future.
4. How NRIs Can Claim Special Tax Concessions Under Sections 115C to 115I of
the Income Tax Act

Many NRIs and Persons of Indian Origin (PIOs) continue to maintain investment
portfolios in India. These may include shares, debentures, bank deposits, or
securities issued by the government. However, a large number of them are unaware
of the concessional tax benefits available under Sections 115C to 115I of the Indian
Income Tax Act. These provisions offer a favourable tax structure on income earned
from specific financial assets, provided certain conditions are met.

Understanding these benefits—and how to qualify for them—can significantly

improve your post-tax returns, especially if you are investing in India with foreign
currency.

What Income Is Eligible for Tax Concessions?

The special tax provisions apply to two main types of income: income earned from
specified foreign exchange assets, and long-term capital gains (LTCG) derived from
the sale of those assets. This includes interest or dividend income, as well as gains
from the appreciation of eligible securities.

However, it is important to note that NRIs availing these provisions cannot claim any
deductions under Chapter VI-A of the Income Tax Act (which includes sections such
as 80C for NPS, ELSS, etc.). Additionally, the indexation benefit on long-term capital
gains is not available under these special provisions.

What Are Foreign Exchange Assets?

To qualify for these tax benefits, the assets must be purchased using convertible
foreign exchange—typically funds transferred from an overseas bank account to a
Non-Resident External (NRE) account in India. The Income Tax Act defines "foreign
exchange assets" as investments such as:
 ● Shares in Indian companies (private or public)

● Debentures issued by Indian public companies

● Deposits with Indian public companies

● Central government securities or other notified securities

If an asset is acquired using domestic income—such as rent or dividends parked in

an NRO account—it will not qualify for the concessional tax treatment, even if the
funds are later transferred to the NRE account. The key criterion is the original
source of the funds, not the type of account used at the time of investment.

This distinction often leads to confusion. NRIs commonly transfer money from their
NRO to NRE accounts using Forms 15CA and 15CB. While this is permissible under
FEMA, it does not convert domestic income into foreign exchange for tax purposes.
Tax authorities may request documentary proof to confirm that the investment was
made with genuine foreign currency remittances.

Documentary Requirements
To claim these tax benefits confidently, NRIs must maintain a clear audit trail. This
includes:

● Foreign inward remittance certificates (FIRC)

● Bank remittance advice

● Statements proving that investments were made using convertible foreign

exchange

Without this evidence, the concessional treatment under Sections 115C to 115I may
be denied during tax scrutiny or assessment.

What Are the Applicable Tax Rates?

Under Section 115E, investment income (such as interest or dividends from eligible
assets) is taxed at a flat rate of 20%, while long-term capital gains from the sale of
these assets are taxed at 12.5%. These rates apply on a gross basis, which means
that no deductions or exemptions are available under other sections of the Act for
this income.

Reinvesting LTCG for Tax Exemption

An additional benefit under this framework is that long-term capital gains can be
exempted from tax if the net sale proceeds are reinvested into another eligible
foreign exchange asset within six months of the sale. However, the reinvested
amount must be held for a minimum of three years to retain the tax exemption.

For example, if an NRI sells eligible shares for ₹10 lakh and makes a long-term
capital gain of ₹2 lakh, reinvesting the entire ₹10 lakh into another qualifying asset
within six months would make the entire ₹2 lakh exempt from tax. If only ₹8 lakh is
reinvested, the exemption will be granted on a proportional basis (i.e., ₹1.6 lakh out
of ₹2 lakh), and the remaining ₹40,000 will be taxed at 12.5%.

If the newly purchased asset is sold within three years, the earlier exemption will be
revoked, and the exempted capital gain will become taxable in that year.

Can the Exemption Be Continued Indefinitely?

Yes. The benefit of tax exemption on LTCG can be continued over multiple
investment cycles. As long as the reinvestment is made within six months of each
sale and the new assets are held for at least three years, the exemption can be
carried forward repeatedly. However, at every stage, proper documentation of the
source of funds and asset eligibility is essential.

What Happens After You Return to India?

Even after an NRI returns to India and becomes a resident, they may continue to
avail the concessional tax treatment on income from foreign exchange assets
acquired while they were non-residents. To do this, the individual must submit a
written declaration with their income tax return requesting continued application of
these provisions. However, this continuation does not apply to dividend and interest
income from Indian companies after acquiring resident status.

Conclusion

Sections 115C to 115I of the Income Tax Act offer a tax-efficient framework for NRIs
who invest in India using foreign currency. The flat tax rates, combined with the
reinvestment-based LTCG exemption, can significantly enhance after-tax returns.
However, careful attention must be paid to the origin of funds, timing of investments,
and documentation.

NRIs who integrate this strategy into their overall wealth and retirement planning—
alongside tools like NPS or Indian mutual funds—can create a robust, tax-efficient
portfolio aligned with both domestic and global financial goals.