Finance Minister Nirmala Sitharaman announced that NPS Vatsalaya subscribers would receive the same tax benefits under Section 80CCD(1B) as regular NPS subscribers

NPS Vatsalya tax benefits: FM proposes to cover NPS Vatsalya under 80CCD(1B) tax break NPS Vatsalya is a pension scheme for minor children aimed at developing early saving habits for retirement. The proposal is pending parliamentary approval

Finance Minister Nirmala Sitharaman in her budget 2025 speech announced that NPS Vatsalaya subscribers will now receive the same tax benefits under Section 80CCD(1B) as regular NPS subscribers for their contribution. Note that this benefit is not available under New Tax regime. This could encourage more savings for retirement and dependent security under the NPS scheme. Budget proposes are subject to passing of the Finance Bill by both houses of parliament.

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The Pension Fund Regulatory and Development Authority (PFRDA) is the regulatory body overseeing the scheme, ensuring transparency and secure management of investments.

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Finance Minister in her Union Budget 2025 stated, “It is proposed to extend the tax benefits available to the National Pension Scheme (NPS) under sub-section (1B) of section 80CCD of the Income-tax Act, 1961 to the contributions made to the NPS Vatsalya accounts, as applicable.”

If implemented, taxpayers contributing to NPS Vatsalya accounts (presumably for children, dependents, or specific beneficiaries), would be eligible to claim an additional Rs 50,000 tax deduction under Section 80CCD(1B), similar to the deductions available for regular NPS contributions.

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Current tax benefit for NPS contributions (Section 80CCD(1B))
Section 80CCD(1B) of the Income-tax Act allows an additional tax deduction of up to Rs 50,000 for contributions made by individuals to the National Pension System (NPS).
This deduction is over and above the Rs 1.5 lakh limit under Section 80C.

What is NPS Vatsalaya?

NPS Vatsalya is a pension scheme for minor children in India. It is a part of the National Pension System (NPS). The scheme is designed to help children develop the habit of saving for retirement from a young age.

Features of NPS Vatsalya

Parents or guardians can open an NPS account for their children
The minimum contribution is Rs 1,000 per year, and there is no limit on the maximum contribution
The Pension Fund Regulatory and Development Authority (PFRDA) regulates and administers the scheme
The scheme can be opened online through the eNPS platform
The scheme aims to help children build long-term financial security

What are exit options upon reaching majority
When the child turns 18, they have the option to exit the scheme instead of converting it into a regular NPS account. Here are the exit rules, according to the Protean website:

Annuity Purchase Requirement: At least 80% of the accumulated funds must be invested in an annuity plan to ensure future pension benefits.
Lump Sum Withdrawal: The remaining 20% of the corpus can be withdrawn as a lump sum.
Exception: If the total accumulated corpus is less than Rs 2.5 lakh, the entire amount can be withdrawn in a lump sum without the requirement to invest in an annuity.

How to apply
Parents and guardians can apply for NPS Vatsalya online or offline..
Application Steps:
Gather Required Documents: Ensure you have the necessary documents like Aadhaar and PAN cards for both the guardian and the child.
Choose Application Mode: Decide whether to apply online through the official eNPS portal or offline via authorized banks and financial institutions.
Fill Out the Application Form: Complete the required details accurately.
Submit Documents: Attach the necessary documents as per the guidelines.
Verification and Approval: The application will undergo verification by the PFRDA for approval.

This story originally appeared on: India Times - Author:Faqs of Insurances