Renounced Your Indian Citizenship? Here’s The New NPS Rule You Need to Know

May 07, 2025 / Reading Time: Approx. 6 mins

Listen to Renounced Your Indian Citizenship? Here’s The New NPS Rule You Need to Know

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The National Pension System (NPS) is a worthwhile investment-cum-pension scheme of the Government of India regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

NPS provides old age security in the form of pension to all the citizens of India in the age group of 18 years to 70 years.

Even Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI) after complying with the Know Your Customer (KYC) norms and on fulfilment of regulatory requirements as prescribed by the Reserve Bank of India (RBI) and Foreign Exchange Management Act, 1999 (FEMA) from time to time, can invest in NPS to plan their retirement needs.

A respectable corpus can be built over the years by making meaningful contributions to the NPS Account (Tier 1), which can then be utilised to purchase an annuity taking care of one's retirement needs. You can defer this annuity purchase till the age of 75 years.

When it comes to withdrawals, NPS also provides the 'Systematic Lumpsum Withdrawal (SLW)' Option, apart from the option of withdrawing 60% of the corpus accumulated at the time of retirement (60 years) in a lump sum.

SLW make it possible to withdraw in a staggered manner monthly, quarterly, half-yearly, or annual withdrawals -- as per one's choice -- until 75 years of age, thereby providing flexibility while addressing liquidity at the time of retirement. So, when you retire at 60 years of age, SLW ensures that the money continues to grow with market-linked returns for a good 15 years till your age of 75 years. If the corpus remains in your NPS account even after attaining 75 years of age, the corpus/units will then be redeemed and transferred to your bank account.

In case you wish to close and exit the NPS Account before the retirement age of 60 years, it is possible to do so provided the mandatory lock-in period (of 3 years for government employees and 5 years for corporate or non-government sector employees), is completed.

All you need to do is furnish your original PRAN (Permanent Retirement Account Number) card, Aadhaar card (or any other address document), PAN card, and bank certificate with account details (such as account number, IFSC code, etc.) for funds transfer purposes.

Latest Development on NPS for Non-Residents and Overseas Citizens of India 

Recently the PFRDA, vide a circular dated April 21, 2025, changed the NPS rules for settlement of corpus and closure of NPS Account for subscribers who have renounced their Indian citizenship and do not hold an OCI card. In such a case, the subscriber will be required to immediately intimate the NPS Trust of the change in status along with the proof thereof.

Note that renouncing Indian citizenship, in simple terms means voluntarily giving up or relinquishing Indian nationality to obtain another country's citizenship. This is required under the law, as the Constitution of India does not allow holding Indian citizenship and Citizenship of a foreign country simultaneously.

However, a Person of Indian (PIO) of a certain category who migrated from India and acquired citizenship of a foreign country other than Pakistan and Bangladesh, is eligible for an OCI card as long as their home country allows dual citizenship in some form or other under their relevant national laws. If a non-resident has opted out from holding an OCI card or holds an OCI card but decides to surrender it, then respective authorities need to be notified about it.

Closure of the NPS Account

In case one NRI has renounced Indian citizenship and does not hold an OCI card, the PFRDA's latest circular states that the PRAN/NPS Account held by the subscriber shall be closed and the entire accumulated corpus or the pension wealth may be transferred to the Non-Resident Ordinary (NRO) Account only.

Process of Settlement

To process the settlement, an application for closure of the account is necessary to be submitted to the NPS along with the following documents:

  • An undertaking that he/she has renounced his/her Indian citizenship and does not hold an OCI card, and

  • Valid certification of renunciation of Indian citizenship/Surrender Certificate/Cancelled Indian passport, issued by the competent authority.

After verifying the submitted documents, the NPS Trust and the Central Recordkeeping Agencies (CRAs) will then process with closure of the NPS Account and proceeds, i.e. the corpus accumulated will transferred to the NRO Account, as per the FEMA guidelines issued by the RBI.

Since the proceeds are due to redemption it is a capital income, and it can be repatriated up to US Dollars (USD) 1 million per financial year (subject to documentation) cumulatively for all your NRO accounts held in India. Note that fund transfers from your NRO account to your NRE account also fall under the USD 1 million limit.

Tax Treatment on Closure of NPS Account by Non-Residents

For closure of the NPS Account (i.e. opting out of NPS), there is an exemption of up to 40% of the contributions made.

The money received into the NRO Account on closure of the NPS Account after renouncing Indian citizenship, is income earned in India. The credit balances and interest earned on the NRO Account are taxable as per the individual's tax slab.

Final Thoughts...

The new NPS closure rule for non-residents is in line with the law of the country. If you are an NRI and have renounced your Indian citizenship and do not hold an OCI card, as a responsible investor it is important that you intimate the NPS Trust and be mindful of the tax treatment of the pension wealth earned.

Also, in the interest of your long-term financial well-being and to live the golden years of life in bliss in whichever country you are in, make sure you are deploying the NPS money credited into the NRO Account sensibly

Be a responsible and thoughtful investor.

Happy Investing!

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ROUNAQ NEROY heads the content activity at PersonalFN and is the Chief Editor of PersonalFN’s newsletter, The Daily Wealth Letter.
As the co-editor of premium services, viz. Investment Ideas Note, the Multi-Asset Corner Report, and the Retire Rich Report; Rounaq brings forth potentially the best investment ideas and opportunities to help investors plan for a happy and blissful financial future.
He has also authored and been the voice of PersonalFN’s e-learning course -- which aims at helping investors become their own financial planners. Besides, he actively contributes to a variety of issues of Money Simplified, PersonalFN’s e-guides in the endeavour and passion to educate investors.
He is a post-graduate in commerce (M. Com), with an MBA in Finance, and a gold medallist in Certificate Programme in Capital Market (from BSE Training Institute in association with JBIMS). Rounaq holds over 18+ years of experience in the financial services industry.


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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