How UAE NRIs can invest in the NPS
One of India’s most NRI-friendly investment products is the National Pension System (NPS). NPS is open to NRIs who are Indian citizens or OCI card holders. It provides a great retirement kitty for those NRIs looking to retire in India. NRIs filing income tax returns in India can also take the benefit of NPS tax deductions.
Where to invest
You can allocate the money into NPS Common Schemes (Equity capped at 75%) or NPS MSF Schemes (Equity can be 100%). NPS Common lets you have active control over asset allocation between equity, government debt and corporate debt while MSF leaves it to the discretion of the pension fund manager. NPS Equity Schemes have done well with returns at 13-14% CAGR in the past 10 years. You can view returns on the NPS Trust website (npstrust.org.in).
How to invest
You can open an NPS account online if you have an Aadhar and PAN card using the Protean website for example. The account can be opened in just a few hours and you can start contributing.
Tax deduction
In the old regime, there are tax deductions up to Rs 2 lakh using Section 80C and 80 CCD(1B). Many NRIs can qualify for this if they have taxable income in India eg: income from business or rental income. The new regime also has a deduction for NPS, but only for employer contributions. More importantly, there is no tax in the NPS for switching money between pension funds or asset classes (equity to debt, for example). This latter benefit is extremely useful when there are huge market rallies or sharp corrections.
Maturity
The PFRDA has made important changes to NPS maturity in the past few months. The NPS Tier 1 account matures at age 60 or after 15 years in the NPS, whichever is earlier. At this point you can withdraw up to 80% of your corpus either in lumpsum or according to a systematic withdrawal plan and most of it (60%) is tax-free. The balance 20% has to be used to buy an annuity.
Retirement in India
Since NPS is open to NRIs you can use your foreign earnings to build up an NPS corpus. There is no maximum contribution limit to NPS. On returning to India you can draw a large pension from it.
Most Asked Questions About NPS (National Pension System) for UAE NRIs
What is NPS and why is it considered NRI-friendly for retirement planning?
The National Pension System (NPS) is India's government-backed pension scheme open to NRIs who are Indian citizens or OCI card holders. It offers tax-efficient growth, flexible asset allocation, low fees, and generates a tax-efficient retirement income stream, making it ideal for NRIs planning to retire in India while working abroad.
Who is eligible to open an NPS account as a UAE NRI?
NRIs who are Indian citizens or hold an OCI (Overseas Citizen of India) card can open NPS accounts. You simply need valid Aadhaar and PAN cards to register online through platforms like Protean, with accounts opening in just a few hours.
What are NPS Common Schemes versus NPS MSF Schemes, and which should I choose?
NPS Common Schemes let you actively control asset allocation between equity (capped at 75%), government debt, and corporate debt. NPS MSF (Multi-Sector Fund) Schemes place allocation decisions with professional fund managers and allow up to 100% equity exposure. Choose Common Schemes if you prefer control; choose MSF if you prefer passive management.
What have been the historical returns on NPS equity investments?
NPS Equity Schemes have delivered 13-14% CAGR over the past 10 years, providing strong real wealth growth. You can verify current and historical returns on the NPS Trust website (npstrust.org.in) to evaluate performance before allocating.
How much tax deduction can I claim on NPS contributions as an NRI?
Under the old tax regime, NPS contributions qualify for up to Rs 2 lakh in tax deductions through Sections 80C and 80CCD(1B), provided you have taxable income in India (e.g., business or rental income). The new regime offers deductions only on employer contributions, making the old regime more attractive for most NRIs.
Are there tax implications when switching between NPS asset classes or pension funds?
No. One major advantage of NPS is that switching between pension funds or asset classes (equity to debt, for example) incurs zero tax. This is extremely valuable during market rallies or sharp corrections when you want to rebalance without tax friction.
Is there a maximum contribution limit to NPS for NRIs?
No. There is no ceiling on NPS contributions, so NRIs can invest as much as desired from their overseas earnings to build a substantial retirement corpus over time.
At what age does my NPS Tier 1 account mature, and what are my withdrawal options?
NPS Tier 1 accounts mature at age 60 or after 15 years of NPS membership, whichever comes first. At maturity, you can withdraw up to 80% of your corpus either as a lump sum or via systematic withdrawal plan, with 60% of withdrawals being tax-free. The remaining 20% must be used to purchase an annuity.
How can NPS withdrawals help with retirement income planning in India?
Upon return to India, you can draw a large tax-efficient pension from your accumulated NPS corpus. The combination of tax-free lumpsum withdrawals (60%) and systematic pension from the annuity portion (20%) provides a diversified, tax-optimized retirement income stream.
How should UAE NRIs strategically use NPS for retirement in India?
Use NPS to accumulate a substantial corpus while earning overseas (leveraging foreign currency strength), claim tax deductions if you have Indian taxable income, benefit from tax-free switching during market cycles, and then draw a tax-efficient retirement income after returning to India. Combine with other investments to create a comprehensive retirement portfolio aligned with your India-return plans.
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