Union Budget 2025 & NPS Vatsalya

    Finance Minister Nirmala Sitharaman, in the Union Budget 2025-26, announced tax incentives for contributions to the NPS Vatsalya scheme, aligning its fiscal treatment with that of the standard National Pension System (NPS). This policy measure aims to enhance participation by providing comparable tax advantages, thereby promoting long-term retirement savings and social security.

Premise: NPS Vatsalya gets tax benefits in Budget 2025-26; Here’s what it means for parents.. NPS Vatsalya scheme, launched in September 2024, allows parents to invest in a pension account for minors.

    While presenting the Union Budget in Parliament, Finance Minister Nirmala Sitharaman proposed extending the tax treatment of standard NPS accounts to NPS Vatsalya accounts, subject to existing overall limits. This policy initiative seeks to enhance parity in retirement savings incentives, potentially increasing participation in the scheme.

Implications for Taxpyers

    The proposal expands the applicability of Section 80CCD(1B) of the Income-tax Act, 1961, to include contributions made under the NPS Vatsalya scheme, thereby enabling taxpayers to claim deductions on investments up to ₹50,000 per annum. This measure aims to incentivize retirement savings by enhancing the tax efficiency of contributions within the prescribed fiscal framework.

    Introduced on September 18, 2024, in New Delhi, the NPS Vatsalya scheme is a specialized pension initiative tailored for minors, facilitating long-term financial planning by enabling parents or guardians to invest in their child's future. The scheme permits the opening of a pension account in the minor’s name, with a minimum annual contribution requirement of ₹1,000 and no prescribed upper limit, thereby offering flexibility in capital accumulation for future financial security.

    Upon reaching adulthood, the account can be converted into a regular NPS account or another non-NPS scheme.

    Administered by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS Vatsalya scheme is accessible through registered Points of Presence (PoPs), encompassing major banks, India Post, and pension fund institutions. Additionally, digital enrollment is facilitated via the NPS Trust’s eNPS platform, enhancing accessibility and operational efficiency in scheme participation.

    The extension of tax benefits to NPS Vatsalya is anticipated to enhance its adoption as a structured financial planning instrument for securing minors' long-term financial stability. By leveraging the benefits of compounding and promoting disciplined investment from an early stage, the scheme aligns with broader objectives of fostering financial security and retirement preparedness.

Jishnu Chatterjee,
January, 2025.

Author is a Jack-of-All trades. He believes that specialization is for insects. Author is a public servant, a Linux evangelist, chess enthusiast and a long-term investor.