Renouncing Indian citizenship without an OCI card forces your NPS to close

The change is recent and it is mandatory, which is what catches people who assumed their NPS could sit untouched after they changed citizenship. A PFRDA circular dated 21 April 2025, later formalised as Regulation 5A of the exit regulations, sets the position: a subscriber who has renounced Indian citizenship and does not hold an OCI card must notify the NPS Trust and close all of their Individual Pension Accounts.

The closure is not a choice and it is not open-ended. The entire accumulated pension wealth is paid out, and it can be transferred only to the subscriber's NRO account, not to a foreign account or any other channel. To process it you submit a declaration together with proof of the renunciation, such as a renunciation or surrender certificate or a cancelled Indian passport. The one carve-out is the OCI card: if you hold OCI, you are exempt from the forced closure and may keep contributing. So the trigger is the specific combination of a foreign passport and no OCI.

This is the part to be honest about rather than confident about. Section 10(12A) exempts up to 60% of the amount payable on closure of an NPS account, with the balance taxable. Read plainly, and the section has no age condition in its own words, a closure triggered by renunciation looks like a closure of the account, which would make about 60% exempt and roughly 40% taxable at your slab.

The difficulty is that NPS was not built for a forced whole-corpus payout on citizenship change. The ordinary exit rules push most of the corpus into an annuity and allow only a small lump sum, so a compulsory full payout to an NRO account does not fit the normal exit template that Section 10(12A) was written around. And there is no CBDT circular or clarification confirming how this specific payout is taxed. So the responsible position is that the 60% exemption may well apply, but it is not settled, and the amount that ends up taxable should be treated as an open question to be argued on your facts, not assumed away.

Because you are a non-resident by the time this happens, the payout carries TDS, and that is where the uncertainty becomes a cash problem if you do nothing. The NPS payment to a non-resident is subject to withholding under Section 195, and without any relief the deduction can be taken on a large slice of the corpus, tying up money you may not owe.

The practical answer is to apply for a lower or nil deduction certificate under Section 197 before the payout, setting out the Section 10(12A) position and the real taxable amount, so the withholding matches the tax rather than the whole payout. That keeps your corpus intact while the position is settled, rather than forcing you to claim a large refund later. Under the Income-tax Act 2025 these become Section 393(2) for the TDS and Section 395 for the certificate, with Form 13 replaced by Form 128, but the mechanism is the same. Getting this certificate in place is usually the single most valuable step in the whole closure.

Priya took Canadian citizenship and did not apply for an OCI card. Her NPS corpus is about 40 lakh rupees. Under the 2025 rule she must close the account, and the full 40 lakh can be paid only to her NRO account.

Her CA runs the closure and confronts the tax honestly. On the Section 10(12A) reading, about 24 lakh, the 60%, would be exempt and about 16 lakh taxable, but because a forced full payout is not the exit the section was written for, and there is no clarification, that split is argued, not assumed. To stop the bank withholding on the whole 40 lakh, the CA applies for a lower-deduction certificate under Section 197 reflecting only the genuinely taxable portion, so Priya keeps her corpus while the position is finalised. She ends up paying tax on the part that is genuinely taxable and no more, and the certificate route saved her from a large sum sitting locked in withholding for a year. Had Priya held an OCI card, none of this would have arisen, which is worth knowing before you renounce.