Inculcating the habit of saving for retirement and old age pension among the Indian citizens, National Pension System has now evolved to an all-new different level. It now allows even NRI’s to subscribe to the scheme as an investment option under FEMA 1999.The recent move was madeby mutual consensus amongthe Pension Fund regulatory and Development Authority, RBI and the Government Authorities. This was a much-awaited step for bringing NRIs in the Indian economic sector as the postal electoral facilities has been announced.
Current Government is aware of the role of NRIs, which could play a significant role in upbringing and up scaling the much-needed investment for government’s philanthropist schemes.
The National Pension System (NPS) was launched on 1st January 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens.NPS allows Indian citizens between the age group of 18 to 60 years belonging to the following categories, namely – Central Government Employees, state Government Employees, corporates, Individuals, unorganized sector workers, etc. to avail its facilities.
Central Government launched a co-contributory pension scheme, ‘Swavalamban Scheme‘ in the Union Budget of 2010-11. Under this scheme, the government will contribute a sum of Rs.1000/- to each eligible NPS subscriber who contributes a minimum of Rs.1000/- and maximumRs.12,000/- per annum. This scheme is presently applicable up to Financial Year2016-17.Account has to be opened through financial institutions like public and private Banks, which are designated as Points of presence (first point of interaction).
Subscriber has to submit the following documents to be registered with the scheme –
- Completely filled in registration form
- Proof of Identity
- Proof of Address
- Age/Date of birth proof
NRIs can select fund manager and investment option, but have to submit KYC.Subscriberswill be allotted a 12 digit unique Permanent Retirement Account Number (PRAN). This unique account number will remain the same for the rest of subscriber’s life. This unique PRAN can be used from any location in India.PRAN will provide access to
- Tier I Account– Non-withdrawable account meant for saving for retirement and
- Tier II Account -Voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefit is available on this account.
Allowing NRIs will help bringing investment in the banking sector leading to economic development through easy access to loans by corporates and individuals.NRIs settled in Middle-East will get a social security cover. There will be no ceiling on investment amount with a minimum subscription of Rs. 6,000 per annum. Subscription amount is to be paid by NRIs either by inward remittances through normal banking channels or out of the funds held in their NRE/FCNR/NRO accounts.
Further, there will be an additional tax benefits of Rs. 50,000 listed under Section 80CCD of the Income-Tax Act 1961, which will allow them to get tax deductions up to Rs. 1.5 lakh if they invest 10% of their total income.Moreover, there will also be no restriction on repatriation of the accumulated savings. At the time of maturity, in case corpus is less than Rs 2 lakh,the entire sum will be allowed to be withdrawn. If the amount is more than twolakh, then at least 40% of the corpus has to be put into an annuity to get a monthly pension.
Government will shortly bring in amendment into Foreign Exchange Management Act (FEMA) guidelines to implement the move. Butsome other deliberations could have been to allow opening a joint account and issue of power of attorney.At present, there are around 10 million NPS subscribersin India with the total assets under management at almost Rs.90,000 crore. The Government should also come up with the subsequent NPS linked schemes to manage and direct such large amount into the right direction,magnifying the end result and also the extending outreach to the deprived fraction.