NPS Vatsalya Scheme Gets Tax Benefits Under Budget 2025-26: What It Means for Taxpayers
In a significant move under the Union Budget 2025-26, Finance Minister Nirmala Sitharaman announced tax benefits for contributions made to the NPS Vatsalya scheme, aligning its tax treatment with that of the regular National Pension System (NPS). This decision is expected to enhance the appeal of the scheme and encourage more parents to invest in their children’s financial security.
Key Tax Provisions for NPS Vatsalya
The government has proposed that NPS Vatsalya accounts be granted the same tax exemptions as traditional NPS accounts, subject to overall contribution limits. Specifically, contributions made to the scheme will now be eligible for deductions under Section 80CCD(1B) of the Income-tax Act, 1961, allowing taxpayers to claim deductions of up to ₹50,000 annually.
This aligns with the existing benefits available for standard NPS subscribers and ensures that parents planning for their children’s long-term financial stability can also avail tax incentives while securing a pension-based future for their wards.
What is NPS Vatsalya?
NPS Vatsalya is a pension scheme specifically designed for minors, allowing parents or guardians to open a pension account in the child’s name and make annual contributions. The scheme was launched on September 18, 2024, in New Delhi under the Pension Fund Regulatory and Development Authority (PFRDA).
Key Features of NPS Vatsalya
- Eligibility: Available for minors, with parents or legal guardians as contributors.
- Minimum Contribution: ₹1,000 per year; no upper contribution limit.
- Account Maturity: Upon reaching adulthood, the child can convert the account into a regular NPS account or another non-NPS financial instrument.
- Tax Benefits: Contributions qualify for deductions up to ₹50,000 under Section 80CCD(1B).
- Investment Growth: The scheme allows investments in different asset classes such as equity, corporate bonds, and government securities, benefiting from compounding over time.
How NPS Vatsalya Benefits Parents and Guardians
For example, consider a parent investing ₹50,000 annually in NPS Vatsalya from the time a child is 5 years old until they turn 18. Assuming an average annual return of 10%, the corpus at maturity would be approximately ₹12.5 lakh. If continued under a regular NPS account, this amount could further grow substantially by the time the child retires.
Moreover, the ability to claim tax deductions on these contributions makes this an attractive long-term savings option. This structure is particularly beneficial for parents looking to instil financial discipline and stability in their child’s future.
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Where to Open an NPS Vatsalya Account?
The NPS Vatsalya account can be opened through registered Points of Presence (PoPs), including:
- Major banks such as SBI, HDFC, and ICICI
- India Post offices
- Pension fund companies
- Online registration via the eNPS platform
The Road Ahead: What This Means for Indian Households
With the latest tax incentives, NPS Vatsalya is likely to witness greater adoption, offering families a structured financial planning tool for their children’s future. It enables systematic wealth accumulation, disciplined investment habits, and tax-efficient financial planning.
The Budget 2025-26’s inclusion of NPS Vatsalya under tax benefits is a progressive step towards encouraging pension-based savings from an early age, ensuring long-term financial security for future generations.
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