Can OCI Cardholders Get a Pension in India?

An Overseas Citizen of India (OCI) card provides a form of permanent residency for individuals of Indian origin, granting them many rights similar to Indian citizens. For OCI cardholders, securing a post-retirement income in India has become a viable option due to key regulatory changes. These changes established parity between OCI cardholders and Non-Resident Indians (NRIs) for certain financial activities.

This alignment opens avenues for OCIs to participate in Indian pension schemes, allowing them to build a retirement fund within the Indian financial system. Holding an OCI card is not a barrier to planning for retirement in India.

Pension Scheme Eligibility for OCI Cardholders

The primary government-sponsored pension plan available to OCI cardholders is the National Pension System (NPS). In 2019, the Pension Fund Regulatory and Development Authority (PFRDA) extended eligibility for the NPS to OCIs, placing them on equal footing with NRIs. This decision allows any OCI cardholder between the ages of 18 and 70 to subscribe to the scheme and build a retirement corpus in India.

The core requirement for an OCI to join is to be compliant with Know Your Customer (KYC) norms, similar to any other subscriber. While the NPS is the main avenue, other schemes like the Employee Provident Fund (EPF) are generally not accessible unless the OCI holder had an active EPF account from previous employment in India. The NPS framework for OCIs allows them to invest on either a repatriable or non-repatriable basis, which determines whether the final proceeds can be transferred abroad.

Enrolling in the National Pension System

Before an OCI cardholder can contribute to a pension, they must complete the enrollment process for the National Pension System (NPS). This involves gathering specific documentation and making several key decisions about the account’s structure. The first step is to secure the necessary documents.

• A valid Permanent Account Number (PAN) card, the primary identifier for financial transactions in India
• The applicant’s OCI card as proof of eligibility
• A valid passport
• An active Indian bank account, which can be a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account

With the documents ready, the applicant can obtain the subscriber registration form. This is available physically at designated Points of Presence (POPs), which are typically bank branches, or electronically through the eNPS portal. The online process is a convenient option for those residing overseas.

Completing the application requires making several important choices. The applicant must first choose an account type. A Tier I account is the mandatory, core pension account with strict withdrawal limitations designed for long-term retirement savings. A Tier II account is an optional, voluntary savings account, but OCIs are generally restricted to opening only the Tier I account.

The next decision involves selecting a Pension Fund Manager (PFM). PFMs are professional entities responsible for investing contributions according to the chosen strategy. The PFRDA website lists the performance of all available PFMs, allowing applicants to make an informed choice.

Finally, the applicant must decide on an investment allocation strategy. The “Active Choice” option allows the subscriber to determine the percentage of their funds allocated to different asset classes, such as equities and government securities. Alternatively, the “Auto Choice” option uses a life-cycle fund model where the asset allocation automatically becomes more conservative as the subscriber ages.

Managing Contributions and Accounts

Once enrolled in the NPS, ongoing management involves making regular contributions. All contributions into an OCI’s NPS account must be routed through their designated NRE or NRO bank account in India. This ensures that the source of funds is compliant with foreign exchange regulations.

The Tier I account is the core of the pension plan, where contributions are locked in until the subscriber reaches age 60. This structure is intended to enforce disciplined saving for retirement. The minimum annual contribution to keep the Tier I account active is a nominal amount of around ₹1,000.

While the Tier I account is largely illiquid, the PFRDA does permit partial withdrawals under specific, predefined circumstances. A subscriber can withdraw up to 25% of their own contributions for certain life events after being in the plan for a minimum number of years. These events include higher education or marriage of children, purchase of a first home, or treatment of critical illnesses for the subscriber or their immediate family.

In contrast, the Tier II account functions more like a voluntary savings account with no withdrawal restrictions. However, regulations have generally limited OCI and NRI subscribers to only the Tier I account. This reinforces the NPS’s primary objective as a long-term retirement savings vehicle.

The Pension Withdrawal and Payout Process

The withdrawal and payout process for the National Pension System (NPS) begins when the subscriber reaches age 60 or their chosen age of superannuation. The process is initiated by submitting a formal withdrawal request to the Central Recordkeeping Agency (CRA).

Upon exit, a minimum of 40% of the total accumulated pension wealth in the Tier I account must be used to purchase an annuity. An annuity is a financial product, sold by an Annuity Service Provider (ASP), that guarantees a regular pension payment for the remainder of the subscriber’s life. This mandatory annuitization ensures a stable, lifelong income stream.

The remaining portion of the corpus, up to 60%, can be withdrawn as a lump sum. For example, if an OCI cardholder has accumulated a corpus of ₹1 crore, they must use at least ₹40 lakh to buy an annuity and can withdraw up to ₹60 lakh as a single payment.

When purchasing the annuity, the subscriber has several payout options. These can include a simple lifetime annuity that ceases upon the subscriber’s death, an annuity with a “return of purchase price” feature that pays the initial investment back to a nominee, or a joint-life annuity that continues to pay a pension to a surviving spouse. The choice of annuity option will directly impact the amount of the regular pension payment.

Repatriation and Tax Rules

For an OCI cardholder, understanding the regulations governing taxation and the repatriation of funds is essential. In India, the National Pension System (NPS) receives favorable tax treatment. Contributions to a Tier I account are eligible for tax deductions under Section 80CCD of the Income Tax Act. Upon withdrawal at retirement, up to 60% of the corpus taken as a lump sum is tax-exempt. The annuity payments received from the mandatory 40% portion, however, are treated as income and taxed according to the applicable income tax slab.

The ability to transfer pension funds out of India is governed by the Foreign Exchange Management Act (FEMA). The rules for repatriation depend on the type of bank account used for contributions. If contributions were made from a Non-Resident External (NRE) account, which is funded by foreign currency, the entire maturity proceeds are freely repatriable. If contributions were made from a Non-Resident Ordinary (NRO) account, repatriation is subject to certain limits and requires certification that all applicable taxes have been paid.

A final consideration is the potential for international taxation. The pension income an OCI holder receives from India may also be taxable in their country of residence. To prevent the same income from being taxed twice, India has signed Double Taxation Avoidance Agreements (DTAAs) with numerous countries. These treaties contain rules that determine which country has the primary right to tax the pension income. It is advisable for OCI cardholders to consult with a tax professional familiar with the DTAA between India and their country of residence.