NRIs and OCIs can now fund NPS from an NRO account: what RBI's June 2026 Mode of Payment (NDI) amendment says

On 13 June 2026 the Reserve Bank of India issued Notification No. FEMA 395(4)/2026-RB, the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026. It amends the principal regulations, FEMA 395/2019-RB dated 17 October 2019, and its headline change for the diaspora is simple to state: a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) cardholder may now pay a National Pension System subscription out of an NRO account, as well as by inward remittance or from a repatriable account.

Below we set out what the amended text says, how it sits alongside the Income-tax Act, 1961 and the DTAAs, and what it means for repatriation. Rules are taken from the notification on rbi.org.in or from the FY 2025-26 figures Oquilia tracks; where a point is unsettled, we say so.

What changed on 13 June 2026, in one table

The amendment substitutes Sl. No. III of regulation 3.1 of FEMA 395/2019-RB. That serial number governs Schedule III of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the NDI Rules), which covers investments by an individual person resident outside India, including an NRI or OCI, on a repatriation basis. The notification states that the amendment comes into force from the date of its publication in the Official Gazette, and it is signed by Rohit P. Das, Regional Director.

The phrase that matters is in the third row. The amended regulation names the NRO account expressly for NPS, which it does not do for Schedule III investments generally.

FEMA / DTAA Position

The statutory chain

Section 6 of the Foreign Exchange Management Act, 1999 is the gateway: a capital account transaction needs RBI permission unless it is specifically permitted. The NDI Rules, 2019 provide that permission for listed classes of non-debt investment, and FEMA 395/2019-RB (17 October 2019) prescribes how those investments must be paid for and reported. Notification FEMA 395(4)/2026-RB is the fourth amendment in that series, and it rewrites only Sl. No. III of regulation 3.1.

The designated-account requirement

The substituted text requires the individual to designate a repatriable rupee account and to use it exclusively for investments under Schedule III. In practice this is the account through which equity purchases and their sale proceeds flow. The notification links the two: equity sale proceeds, net of taxes, may be credited back to that designated rupee account or remitted abroad.

The NPS carve-out sits alongside this rule rather than inside it. Under the substituted Sl. No. III, an NPS subscription may be paid by inward remittance, from any repatriable foreign currency or rupee account, or from an NRO account. Nothing in the briefing text of FEMA 395(4)/2026-RB confines NPS payments to the designated account, so a subscriber is not forced to route pension contributions through the same account used for share trading.

If you are unsure which account is which, our glossary entries on the NRO account, the NRE account and FEMA set out the basic distinctions.

Where the DTAA comes in

A DTAA does not decide which bank account may fund NPS. That is purely a FEMA question, and FEMA 395(4)/2026-RB answers it. A treaty becomes relevant later, when income arising from Indian investments is taxed and a credit is claimed abroad. For reference, the treaty rates Oquilia tracks for three of the largest NRI corridors are below.

None of these treaties contains an article specific to the National Pension System in the material we hold, and we do not suggest one exists. Readers should treat the DTAA as a tool for credit on taxed income, not as a source of NPS-specific relief.

Tax Treatment in India

The payment route does not change the tax

The RBI notification is a foreign exchange instrument. It changes the mode of payment for an NPS subscription and nothing in it amends the Income-tax Act, 1961. Paying from an NRO account rather than an NRE account therefore does not, by itself, make a contribution more or less deductible, nor does it change how a withdrawal is taxed. The notification's own references to tax are limited to the words "net of taxes" when describing sale proceeds that may be remitted or credited.

Deductions depend on regime

The deduction for a subscriber's own NPS contribution sits in section 80CCD of the Income-tax Act. One rule is firm and frequently misreported: the additional deduction under section 80CCD(1B) is available only under the old tax regime. It is not available under the new regime that applies by default from FY 2025-26 onwards. An NRI choosing between regimes should model both; the NRI income tax calculator and the NPS tax benefit calculator let you compare outcomes.

The FY 2025-26 parameters that drive that comparison are:

Note that the section 87A rebate and the standard deduction are tied to resident status and salary income respectively; an NRI should confirm eligibility for each before relying on either figure.

Withdrawals: two limits that no longer match

The tax angle that most NRIs miss is on exit, not entry. Under the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, notified on 19 December 2025, a non-government (All Citizen Model or Corporate Sector) subscriber may take up to 80% of the corpus as a lump sum, with at least 20% used for an annuity. The government sector and NPS-Lite remain at 60/40.

The Income-tax Act has not moved in step. Section 10(12A) still exempts the payment on closure or opting out only to the extent it does not exceed 60% of the total amount payable, a cap in place since 1 April 2020. So an NRI in the All Citizen Model may now withdraw 80%, but only 60% is covered by the section 10(12A) exemption. Oquilia has found no Finance Act provision settling the treatment of the slice between 60% and 80%, so we state the two limits separately and recommend confirming the excess with a tax adviser before withdrawing.

Partial withdrawals are not affected by the gap: section 10(12B) exempts up to 25% of the subscriber's own contributions, which equals the PFRDA partial-withdrawal limit. A partial withdrawal needs at least 3 years in the scheme, and before 60 it may be made up to 4 times with a gap of at least 4 years. You can project the corpus these percentages apply to with the NPS calculator.

Withholding on payments to a non-resident

Where an Indian payer pays a taxable sum to a non-resident, section 195 of the Income-tax Act governs withholding. Oquilia's statute brief for section 195 records the working rule: tax is withheld at the DTAA rate or the rate in the Act, whichever is lower, provided the treaty conditions (including a valid Tax Residency Certificate) are met. Whether section 195 bites on an NPS exit turns on the 60% question above. Further guidance is published on incometax.gov.in.

Tax Treatment Abroad

Credit, not deduction

The country where an NRI lives decides whether an Indian NPS contribution earns any relief there. FEMA 395(4)/2026-RB is silent on that, and so are the treaty extracts we hold. What the treaties do provide is a credit mechanism for Indian tax actually paid. The India-USA treaty, effective from 12 September 1991, records in Article 24 that a foreign tax credit is available in the country of residence.

That credit is only as large as the Indian tax on the relevant income. If a withdrawal falls within the 60% covered by section 10(12A), there may be no Indian tax to credit, while the country of residence may still assess the receipt under its own rules. Conversely, if Indian tax is paid on the slice above 60%, a credit claim abroad becomes relevant. Our foreign tax credit calculator models how a credit interacts with Indian tax paid.

Where NRO funding changes the picture

NRO balances are ordinarily Indian-source income such as rent, dividends or interest. Investing them in NPS does not reverse Indian tax already levied, nor change how the residence country treats that income. What changes from 13 June 2026 is that those balances can go straight into a long-term Indian pension product under FEMA 395(4)/2026-RB. Check with a local adviser whether your country of residence taxes growth inside a foreign pension account, and how it treats the exit lump sum.

Repatriation Mechanics

What the notification says about sale proceeds

The amended Sl. No. III draws a clear line between equity and other Schedule III holdings:

1. Equity: sale proceeds, net of taxes, may be remitted abroad or credited to the designated repatriable rupee account.
2. Mutual fund units and NPS: sale proceeds, net of taxes, may be remitted abroad or credited to any account under the FEMA (Deposit) Regulations, 2016, at the NRI or OCI's option.

For NPS, the "any account" wording is the important part. It covers repatriable accounts and also, read with the Deposit Regulations, an NRO account. The option sits with the subscriber, not the bank.

NRO in, repatriable out

The notification does not, in the text summarised in our briefing, require NPS proceeds to return to the same type of account that funded the contribution. An NRI who contributes from an NRO account in 2026 is, on the plain wording, still able to have net exit proceeds remitted abroad. Banks may nevertheless ask for evidence of source and of tax paid before processing an outward remittance, and the treatment of NRO-sourced money on repatriation is governed separately under the Deposit Regulations, 2016. Oquilia's coverage of the FEMA Deposit (Sixth Amendment) 2026 explains how NRO-to-NRE transfers are now written into Schedules 1 and 3 of those regulations.

The repatriation calculator and the NRO-to-NRE transfer calculator help estimate what reaches your overseas account after Indian tax. For pension-system rules, the authoritative source remains pfrda.org.in; the principal statutes are on indiacode.nic.in.

FAQ

Can an NRI pay NPS contributions from an NRO account?

Yes. Notification FEMA 395(4)/2026-RB dated 13 June 2026 substitutes Sl. No. III of regulation 3.1 of FEMA 395/2019-RB and states that NPS subscriptions by NRIs and OCIs may be paid by inward remittance, from any repatriable foreign currency or rupee account, or from an NRO account.

Do I need a designated rupee account to invest in NPS?

The amendment requires a repatriable rupee account to be designated and used exclusively for Schedule III investments. The NPS payment provision separately lists inward remittance, any repatriable account and the NRO account, so the 13 June 2026 text does not name the designated account as the only NPS route.

Can NPS proceeds funded from NRO be sent abroad?

Under the amended Sl. No. III, NPS sale proceeds, net of taxes, may be remitted abroad or credited to any account under the FEMA (Deposit) Regulations, 2016, at the subscriber's option. Your bank may still ask for tax documentation before an outward remittance.

Does paying from NRO change my tax deduction?

No. FEMA 395(4)/2026-RB is a foreign exchange regulation and does not amend the Income-tax Act, 1961. Deduction eligibility still depends on section 80CCD and your chosen regime; section 80CCD(1B) is available only under the old regime.

How much of my NPS lump sum is covered by section 10(12A), given the 60% cap?

Not on current law. PFRDA allows non-government subscribers to withdraw up to 80% as a lump sum from 19 December 2025, but section 10(12A) exempts only up to 60% of the amount payable. Confirm the treatment of the 60% to 80% slice with a tax adviser.

Will my country of residence give me a deduction for NPS?

That depends on its domestic law, not on the RBI notification. The DTAAs Oquilia tracks provide credit for Indian tax paid (for example Article 24 of the India-USA treaty, effective 12 September 1991) but contain no NPS-specific deduction in our data.

This article explains a regulatory change and is not personal tax or investment advice. Figures are current as at 20 October 2026.