Can NPS Vatsalya help you get Rs 2 lakh tax deduction like NPS? Read the fine print carefully before investing NPS offers significant tax benefits to investors. Various media reports claimed that similar tax benefits have been extend to NPS Vatsalya. Will get tax deductions under Section 80CCD(1) and Section 80CCD (1B) of the Income-tax Act, 1961 for investing in NPS Vatsalya? Read on to find out
Finance Minister Nirmala Sitharaman launched NPS Vatsalya last week. It is an investment scheme to secure retirement savings for your minor children. Parents or guardians of the child can invest in NPS Vatsalya on behalf of the minor. However, the account should be opened in the name of the minor.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} In simple words, what the National Pension System (NPS) is for you, NPS Vatsalya is for your kid. Any Indian citizen who is below 18 years old is eligible to invest in NPS Vatsalya. Non-resident Indian (NRI) and Overseas Citizenship of India (OCI) individuals below 18 years can also open an account in NPS Vatsalya.
Apart from building a retirement corpus, NPS also helps you to save tax. In fact, tax benefits for investing in NPS is available in both tax regimes — new tax regime and old tax regime. It is indeed one of the reasons that more and more people are opting for NPS in recent years. According to various media reports similar tax benefits could be available for NPS Vatsalya as well. Individuals have already started investing in NPS Vatsalya and there is a lot of confusion about whether they will get the tax benefits for NPS Vatsalya that they can avail for NPS.
What are the tax benefits that you can claim for NPS Vatsalya?
Before we go into the nitty-gritty of NPS Vatsalya tax rules, let's understand the tax benefits you get for investing in NPS.You can claim tax deductions against NPS under three sections of the Income-tax Act, 1961 in India: Sections 80CCD (1), 80CCD (1B), and 80CCD (2).
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Section 80CCD(1) of the Income-tax Act, 1961, provides a deduction from your gross total income for contributions made to the NPS. Both salaried and self-employed individuals can claim this deduction for their NPS investments.
Maximum deduction limit for NPS under Section 80CCD(1):
Salaried individuals: Up to 10% of your salary (Basic + Dearness Allowance).Self-employed individuals: Up to 20% of your gross total income.
The maximum deduction under Section 80CCD(1) is subject to a ceiling of Rs 1.5 lakh in a financial year. However, this limit is part of the overall ceiling of Rs 1.5 lakh for deductions under Section 80C, Section 80CCC, and Section 80CCD.
Section 80CCD (1B) offers an additional deduction of up to Rs 50,000 for contributions to NPS. This is over and above the limit of Rs 1.5 lakh available under Section 80CCD (1), providing a potential tax-saving opportunity for both salaried and self-employed taxpayers.
Section 80CCD(2) of the Income-tax Act offers a tax benefit specifically for salaried individuals. It allows them to claim a deduction for contributions made by their employers towards their NPS accounts. The amount of deduction cannot exceed 14% of the salary (basic + DA) for government employees and 10% for the private sector employees in the old tax regime.
However, Budget 2024 increased the limit from 10% to 14% for the private sector employees if they opt for the new tax regime. To enable this deduction many private sector companies offer employees the flexibility to structure their salaries in a way that allows employers to contribute towards their NPS by deducting it from their cost-to-company (CTC) package. However, if you go for new tax regime you will not be able to claim many other deductions which are available in old tax regime.
It's important to note that the maximum employer contribution on which a salaried employee can avail of this deduction is capped at Rs 7.5 lakh. This limit is inclusive of contributions towards the Employee Provident Fund (EPF) and superannuation funds if any.
Will you get tax benefits of up to Rs 2 lakh for investing in NPS Vatsalya?
There have been media reports claiming subscribers can claim tax benefits under Section 80CCD(1) and Section 80CCD (1B) of the Income-tax Act, 1961 for investing in NPS Vatsalya.You can claim a tax deduction of up to Rs 2 lakh under Section 80CCD(1) and Section 80CCD (1B) for investing in NPS.
Can you claim a tax deduction of Rs 2 lakh for investing in NPS Vatsalya?
The answer is no. At present, there are no tax benefits available for parents under NPS Vatsalya, says Sumit Shukla, MD & CEO, of Axis Pension Fund. The Pension Fund Regulatory and Development Authority (PFRDA) told ET Wealth Online that it is yet to issue a tax notification for NPS Vatsalya.Any changes or new provisions, if introduced, would likely be announced in the upcoming Budget, adds NPS Vatsalya.
Tax benefits are typically available to an individual when he or she invests in his or her name. But when you invest in a pension fund in the name of another individual, say your child, it needs to be clarified how much tax benefits you can avail of. So do not assume that the tax benefits that you get for investing in NPS will be available for NPS Vatsalya as well.
Another confusion is whether the child will be allowed to claim tax benefits for NPS Vatsalya when he turns 18. According to PFRDA, once the child is 18, the NPS Vatsalya account will be shifted to NPS-tier 1 account.
Shukla says, "Once the child begins earning and becomes a taxpayer, they can avail of the tax benefits applicable to any NPS subscriber directly."
However, you should wait for the official notification to understand the tax benefits that you can claim for NPS Vatsalya.
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This story originally appeared on: India Times - Author:Faqs of Insurances
