Pension Plan for NRI

Why Do NRIs Need Dedicated Pension Solutions?

NRIs often face challenges when planning for pensions, especially related to taxation, repatriation and currency conversion. A dedicated pension plan will act as a relevant solution, giving NRIs peace of mind and stability during retirement.

Here is why NRIs need pension solutions:

1. Ensure smooth repatriation of the pension corpus across borders.

2. Provide clarity on the taxation of NRI pension plans in India and abroad.

3. Safeguard long-term savings from currency exchange fluctuations, ensuring stability.

4. Unlike high-risk defined-contribution retirement plans, pension plans are defined-benefit options offering low risk and stable returns.

5. Help NRIs predict retirement income for peace of mind in later years.

Example: An NRI working in the USA but planning to retire in India can invest in a deferred annuity, building a corpus that ensures financial independence post-retirement.

How to Choose the Right Plan for NRI?

When it comes to choosing an ideal pension plan, consider these factors:  

1. Age

Knowing at what age you want to retire helps in determining your target. Taking into consideration factors such as your future financial needs, desired lifestyle, and health expectations helps determine the retirement age.

2. Retirement Corpus

It refers to the amount of money or assets that individuals set aside to cover their lifestyles and other financial requirements during their non-working years. Having an idea about it provides a detailed guide on how much money you will have during non-working years to cover future expenses.

3. Risk Level

Pension plans that are market-linked are more risk-prone and have potentially higher returns compared to the non-linked ones. Taking into account your own risk level will help you determine whether you want to have stable, guaranteed returns or higher returns by taking risks.

4. Repatriation Need

According to the Foreign Exchange Management Act (FEMA), NRIs can repatriate up to USD 1 million (Approximately ₹8, 75, 59,464) every financial year via their NRO accounts. This amount includes their pension, rents and dividends after tax compliance. Knowing your repatriation needs will help while choosing a pension plan.

Consider this checklist while choosing a pension plan:

Types of Pension Plans Available for NRIs

In the following segment, you can check the types of pension plans for NRIs. Each of these plans comes with specific features based on your age, future goals and premium paying capacity, you can choose.

1.   Traditional (Non-Linked) Pension Plans

These insurer-issued pension plans offer stable yet moderate returns. If you are an NRI and willing to invest in traditional pension plans, you need to start investing via NRE (Non-Resident External) /NRO (Non-Resident Ordinary) accounts.

For example, annuity plans are one of the best traditional NRI pension plans. These plans allow annuitants to get a steady income after retirement.  

Other than annuity, other traditional pension plans are EPF (Employees’ Provident Fund) and PPF (Public Provident Fund). Although NRIs are not eligible to open a new PPF and EPF account, they can continue to invest in their existing accounts.

Once these accounts mature, the amount can be transferred to their NRO account.

2.  Unit-Linked Pension Plans (ULIPs)

ULIP are one of the best long-term investment options that offer dual benefits of insurance and investment. The reason why NRIs invest in such plans is that they can claim tax deductions under Section 80CCC of the Income Tax Act, 1961^#.

As per the provisions of Section 80CCC of the Income Tax Act, 1961, NRIs can claim tax deductions up to ₹1.5 Lakh annually towards contribution to pension funds of life insurance companies and additionally a deduction of ₹50,000 can be claimed under section 80CCD(1B) on contributing to NPS. In total, they can save up to ₹2 Lakh by claiming tax deductions.

Further, on vesting Commutation amounts received from pension plan are exempt under Section 10(10A) of the Income Tax Act, 1961^#.

3. Annuity Plans

If you are looking for guaranteed returns and a regular income stream after retirement, annuity plans are most suitable. You can save money systematically over the years and choose payout flexibility on a monthly, quarterly or annual basis.

For example, deferred annuity plans are low-risk life insurance policies that ensure a fixed income post-retirement. These plans help meet annuitants’ family requirements by offering freedom to choose payout options like single, joint-life, and return of purchase price.

4.  National Pension Scheme (NPS)

NPS is considered the pension plan for NRIs. It is a government-regulated, low-cost pension option where NRIs can invest in debt or equity funds throughout their working years and later purchase an annuity.

Besides providing market-linked returns, NPS offer portability, flexibility and tax benefits. You need to have an NRO or NRE account, as the transactions to the NPS account must be done via such accounts only.

5.  Life Insurance Pension Plans

If you are looking for a pension plan with life cover and global coverage, then choosing life insurance pension plans is for you. During the accumulation phase, the insurer invests the premium amount in various market-linked instruments for the fund to grow during the policy tenure.

Different NRI pension-friendly life insurance plans include ULIPs, endowment plans, child insurance plans, etc. At the time of maturity, or in case of the policyholder’s untimely demise, the invested amount can be withdrawn as a lump sum by the beneficiaries.

The premiums for these plans are lower, making investments in such plans easy. In addition, they offer tax benefits on premiums and commuted amount on maturity.

Tax Benefits & Repatriation Rules for NRI Pension Investments

1. Tax Benefits for NRI Pension Investments

•  Section 80C - Under Section 80C of the Income Tax Act, 1961^#, NRIs can claim tax deductions up to ₹1.5 Lakh annually for their NPS Tier 1 contributions.

•  Section 80CCD(1) - Under Section 80CCD(1)  of the Income Tax Act, 1961^#, NRIs can save up to ₹1.50 Lakh by claiming tax deductions on their Indian income from NPS or APY (Atal Pension Yojana).

•  Section 80CCD (1B) - According to Section 80CCD (1B) of the Income Tax Act, 1961^#, NRIs can claim an additional tax deduction of up to ₹50,000 for contributing to pension plans.

•  Section 80CCE: The aggregate amount of deductions under section 80C^#, section 80CCC^# and sub-section (1) of section 80CCD shall not, in any case, exceed Rs. 1.5 Lakhs.

•  DTAA - A Double Taxation Avoidance Agreement (DTAA) under Section 90 & 91 of the Income Tax Act, 1961 is where the governments of two nations sign an agreement to avoid double taxation on the same income.  

•  As per the NPS tax regulations for NRIs, upon maturity of a pension plan (when the pension holder reaches 60 years of age), 60% of the accumulated corpus can be withdrawn in a tax-free manner. The remaining 40% can be utilised to purchase an annuity plan.

•  If, before reaching maturity, the pension holder wants to withdraw the annuity amount, only 20% of the corpus can be withdrawn with tax exemption.

2. Repatriation Rules for NRI Pension Investments

As per FEMA guidelines, NRIs are allowed to repatriate USD 1 million each financial year from their NRO accounts. This limit is only based on the principal amount and not on the earned interest.

NRIs have to submit Form 15CB and Form 15CA, which are necessary to confirm tax applicability. In case of NRE and FCNR (Foreign Currency Non-Resident) accounts, full repatriation is applicable in both the interest and the principal amount. FEMA does not impose any financial cap in such a context.

Summary

Pension plans for NRIs ensure financial security with predictable income, flexible payouts, or a lump sum during retirement, even while living abroad. By starting early in your 20s or 30s, investments get more time to grow, helping you build a larger retirement corpus for peaceful golden years.

Check out our HDFC Life Pension Guaranteed Plan^{^} to invest today.

Note: If assessee has opted for Old tax regime, assessee shall be eligible to claim deduction under chapter VI-A (like Section 80C, 80D, 80CCC, etc). If assessee has opted for New tax regime only few deductions under Chapter VI-A such as 80JJAA, 80CCD(2), 80CCH(2) are available.

ARN - ED/08/25/26308