NPS for NRIs: Who gets your money after death?

If a National Pension System (NPS) subscriber who is an non resident Indian (NRI) dies before retirement, what happens to the money accumulated in the account? Does it automatically go to the nominee, or can legal heirs claim it?

The answer is important for NRIs and their families because the person receiving the money as a nominee is not necessarily the person who legally owns it.

What happens to the NPS money if an NRI subscriber dies before retirement?

If an NPS subscriber dies before attaining the age of 60, the entire accumulated pension wealth is paid to the nominee or nominees or, where applicable, the legal heirs.

The nominee or family members of the deceased subscriber also have the option to purchase an annuity, if they wish to do so.

In simple terms, if an NPS subscriber, whether an NRI or otherwise, dies before retirement, the accumulated corpus is paid to the registered nominee.

"If an NRI NPS subscriber dies before retirement, the entire accumulated NPS corpus can be paid to the nominee or legal heir. Under the NPS tax rules, the amount received by the nominee on the subscriber’s death is fully exempt from income tax in India. This does not change if the nominee or legal heir is also an NRI. The NPS death benefit remains tax-free in India," said Abhishek Soni, CEO & Co-founder, Tax2win.

"For example, if an NRI subscriber has an NPS corpus of ₹50 lakh and it is paid to an NRI nominee, the ₹50 lakh is not taxable as income in India. However, if the nominee uses the corpus to purchase an annuity, the pension or annuity income received later is taxable," explained Soni.

Does the nominee legally own the NPS money?

"Being a nominee does not automatically mean you own the money outright. The nominee generally holds it in a fiduciary capacity, almost like a trustee, on behalf of the legal heirs unless the nominee also happens to be the rightful heir under succession law," said Shourya Garg, Advocate at Garg & Garg Tax Associates.

"So PFRDA will pay out to the nominee, but that doesn’t necessarily settle who the money legally belongs to. This is exactly why legal heirs can and sometimes do, step in if they’re different from the nominee," said Garg.

"It is not an automatic entitlement though. They would typically need to either get the nominee’s consent, or establish their claim through proper legal channels and courts have generally sided with legal heirs when it comes to actual ownership over a nominee’s claim," said Garg.

What happens if there is no valid nominee?

What documents are required to claim the NPS corpus?

• The subscriber’s death certificate

• KYC and bank details of the person making the claim

• A death withdrawal form

• A legal heir certificate or succession certificate, if there is no valid nominee

"For NRIs, there is usually an added layer, proof of overseas address and FEMA-related repatriation declarations since the funds may need to move across borders," said Garg.

Can NRIs appoint nominees for NPS Tier I and Tier II accounts?

Yes. A nominee can be appointed at the time of opening an NPS account in the prescribed section of the registration form.

You can appoint up to three nominees in your NPS Tier I and Tier II accounts. You must specify the percentage of the share you wish to allocate to each nominee. The share percentage across all nominees should collectively add up to 100%.

How can NRIs contribute to an NPS account?

The contributions made by NRIs can be from either of the following sources, subject to normal foreign exchange conversion norms:

• NRE Account

• NRO Account/local sources

For an NRI with an NPS account, making a valid nomination is important. While the NPS corpus can be paid to the nominee after death, nomination and legal ownership are not necessarily the same thing. Families should therefore keep the nomination details updated.