NPS Vatsalya Scheme: A New Tax Benefit for Parents Investing in Their Children’s Future

The Union Budget 2025 has introduced a significant tax benefit under the old tax regime for contributions made to the NPS Vatsalya Scheme. This scheme, launched on 18th September 2024, allows parents and guardians to open a National Pension Scheme (NPS) account for their minor children, ensuring long-term financial security. The Finance Minister, Nirmala Sitharaman, announced in her Budget speech that contributions to this scheme will now qualify for a tax deduction of up to ₹50,000 under Section 80CCD(1B) of the Income-tax Act, 1961.

Extended Tax Benefits for Parents and Guardians

Under the new provision, parents and guardians can claim a tax deduction on the amount contributed to their minor child’s NPS Vatsalya account, up to the overall limit of ₹50,000. This tax benefit was previously available only for individual contributions to NPS Tier 1 accounts but has now been extended to encourage long-term financial planning for children.

The Finance Bill states that the deduction will be applicable to the total income of the parent or guardian making the contribution. Once the minor reaches 18 years of age, the accumulated corpus in the account will be transferred to an NPS-Tier 1 account under the All Citizen Model or another non-NPS scheme, ensuring continued investment growth.

Features and Benefits of The NPS Vatsalya Scheme

The NPS Vatsalya Scheme is a savings-cum-pension scheme designed exclusively for minors. It allows parents or guardians to make contributions on behalf of their children, ensuring financial stability over the long term. The key highlights of the scheme include:

• Minimum annual contribution of ₹1,000 with no upper limit on investment.
• Tax deduction benefits under Section 80CCD(1B), encouraging structured savings.
• Account operation by the guardian until the minor attains adulthood.
• Long-term corpus creation with the advantage of compounding growth.
• Seamless transition of the account to the child at 18 years of age.

The scheme aims to promote financial discipline and ensure a substantial financial cushion for children as they transition into adulthood.

Conclusion

Including the NPS Vatsalya Scheme under Section 80CCD(1B) tax benefits marks a significant step in encouraging parents to invest in their children’s future. By allowing structured contributions with long-term growth potential, this scheme aligns with the broader objective of fostering financial security for future generations.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.