NPS exit and withdrawal for NRIs: 60% lump sum, annuity and PFRDA rules
NRIs can hold and contribute to the National Pension System (NPS) — Tier 1 accounts. On exit at age 60, 60% of the corpus can be withdrawn as a lump sum (tax-free) and 40% must be used to purchase an annuity from an empanelled insurer (annuity income is taxable at slab rates). If the total corpus is below ₹5 lakh, the entire amount can be withdrawn as a lump sum. Partial withdrawals are allowed after 3 years for specified purposes (medical, education, housing). The annuity can be paid to an NRO account.
60% lump sum tax-free at 60; 40% into annuity (taxable income). Below ₹5 lakh: full withdrawal
At age 60, NPS Tier 1 allows: 60% as a tax-free lump sum withdrawal, and 40% must be invested in an annuity from an IRDAI-registered insurer. Annuity income (monthly pension) is taxable at your applicable slab rate. If the total NPS corpus is ₹5 lakh or less, you can withdraw the entire amount as a lump sum (the annuity rule is waived). NRI PFRDA rules allow NRIs to hold NPS accounts, but contributions must come from NRE or NRO accounts. On retirement, the annuity can be remitted to the NRI's NRO account.
Key points
- 60% lump sum: tax-free at maturity — On NPS exit at 60, up to 60% of the corpus withdrawn as lump sum is fully exempt from income tax.
- 40% compulsory annuity: taxable income — The mandatory 40% annuity produces monthly income taxable at your applicable slab rate — not exempt.
- Corpus below ₹5 lakh: full withdrawal allowed — If the total NPS Tier 1 corpus at 60 is ₹5 lakh or less, you can withdraw the entire amount without buying an annuity.
NPS exit options at retirement (age 60)
Standard exit: 60% lump sum (tax-free) + 40% annuity purchase from PFRDA-empanelled insurer.
Below ₹5 lakh corpus: 100% lump sum withdrawal — annuity purchase is not mandatory.
Deferral option: You can defer the NPS account (without withdrawing) up to age 75. The corpus continues to grow in the NPS fund.
Phased withdrawal: From age 60, you can withdraw up to 60% in systematic phased withdrawals (e.g., annually), deferring the final annuity purchase.
NPS for NRIs: contribution and account rules
Account type: NRIs can open NPS Tier 1 accounts only. Tier 2 (voluntary savings) is not available to NRIs.
Contribution source: NRI contributions must come from NRE or NRO accounts. NEFT/RTGS from NRE/NRO to your NPS account is the standard method.
POP (Point of Presence): NRIs typically use HDFC Securities, ICICI Prudential, or SBI as their POP for NPS — all offer NRI-friendly online NPS account management.
On returning to India: NPS account continues seamlessly — no redesignation required. The account was in INR all along.
Tax deduction: NRI contributions to NPS are eligible for deduction under Section 80CCD(1) within the overall ₹1.5 lakh 80C limit, and additional ₹50,000 under Section 80CCD(1B).
Frequently asked questions
Can the NPS annuity be remitted to my overseas account?
The annuity from an Indian insurer is paid in INR to an Indian bank account. For NRIs, the annuity income (being India-source) should go to NRO. You can then repatriate from NRO within the USD 1 million annual limit after tax compliance.
What happens to my NPS if I die before 60?
The nominee receives 100% of the NPS corpus — no mandatory annuity purchase on premature death. The payout to the nominee is tax-free.
Can I make partial withdrawals from NPS as an NRI?
Yes. Tier 1 partial withdrawals are allowed after 3 years of account opening for specified purposes: medical treatment of serious illness (self, spouse, children, parents), children's education/marriage, purchase/construction of first home, disability/incapacitation. Maximum withdrawal: 25% of the NRI's own contributions (not employer's).