The Pension Fund Regulatory and Development Authority (‘PFRDA’) passed a circular On 29.10.2019, allowing Overseas Citizen of India (‘OCI’) to subscribe to the National Pension System (‘NPS’) in India.
This came after a notification was issued by Department of Economic Affairs on Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, which, amongst other things, permitted the OCIs to subscribe to NPS bringing them at par with Non-Resident Indians (‘NRIs’).
Who are OCIs –
OCIs are basically individuals residing outside India, who are not citizens of India but are holding a valid OCI card. NRIs, on the other hand, are individuals resident outside India but still holding citizenship of India.
A foreign nationals falling under any of the following categories is eligible for registration as Overseas Citizen of India (OCI) Cardholder:
- Who was a citizen of India at the time of, or at any time after the commencement of the Constitution i.e. 01.1950; or who was eligible to become a citizen of India on 26.01.1950; or
- who belonged to a territory that became part of India after 15.08.1947; or
- who is a child or a grandchild or a great grandchild of such a citizen; or
- who is a minor child of such persons mentioned above; or
- who is a minor child and whose both parents are citizens of India or one of the parents is a citizen of India; or
- spouse of foreign origin of a citizen of India or spouse of foreign origin of an Overseas Citizen of India Cardholder registered under section 7A of the Citizenship Act, 1955 and whose marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the presentation of the application.
However, no person, who or either of whose parents or grandparents or great grandparents is or had been a citizen of Pakistan or Bangladesh shall be eligible for registration as an Overseas Citizen of India Cardholder
What is the change exactly :
Earlier the investment in NPS was allowed only to citizens of India (whether resident or non-resident Indians). Individuals who had given up their Indian citizenship or individuals born abroad having parents/ grand parents /great grand parents who are/were citizens of India, were not permitted to invest in this scheme.
Now such individuals holding valid OCI card are brought at par with NRIs in terms of investment in NPS.
Both NRIs and OCIs are allowed to invest in Tier I Scheme. Investment in Tier II Scheme is not permissible. Subscription to NPS can be made out of funds held in NRE/FCNR(B)/NRO account or from bank account abroad.
Income tax benefit:
On self contribution:
One can avail a deduction of upto 20% of gross total income. However, this deduction is subject to an overall ceiling of Rs. 150,000 including any deduction under section 80C and 80CCD of the Income tax Act.
In addition to above, a deduction of Rs. 50,000 is also available 80CCD(1B) of the Income tax Act.
On withdrawal :
60% of the amount payable on closure of account or on opting out of the scheme is exempt from tax. Also any amount utilised for purchase of annuity is exempt from tax.
Presently, on attaining an age of 60 years, atleast 40% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of an annuity providing for the monthly pension of the subscriber and the balance is paid as a lump sum payment to the subscriber.
If you have Indian income which is above the taxable limit, this is a good tax saving tool. This option makes more sense where you have long term plans to come and settle down in India.