Union Budget 2025: In her budget speech for 2025, Finance Minister Nirmala Sitharaman announced that NPS Vatsalya subscribers will now receive the same tax benefits as regular NPS subscribers for their contributions under Section 80CCD(1B).
It is important to note that this benefit will not be available under the New Tax regime. This move is expected to encourage more savings for retirement and dependent security within the NPS scheme. However, it is essential to highlight that these proposed changes are subject to the passing of the Finance Bill by both houses of parliament.
FM Sitharaman, 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.”
In the Budget of 2024, FM Sitharaman unveiled NPS Vatsalya, a scheme designed for minors that was officially launched on 18 September 2024. This program enables parents to make contributions on behalf of their children into the National Pension System (NPS), ensuring their financial well-being and instilling the importance of saving for retirement at a young age.
Taxpayers who contribute to NPS Vatsalya accounts for children, dependents, or specific beneficiaries can claim an additional tax deduction of Rs 50,000 under Section 80CCD(1B), similar to regular NPS contributions.
"Exempting withdrawals from old National Savings Scheme (NSS) accounts and extending tax benefits under Section 80CCD to NPS Vatsalya accounts further enhance financial security for retirees and future generations. As a CRA, we are well-equipped to support these reforms by streamlining NPS Vatsalya account management and ensuring compliance with updated tax provisions. We also welcome the creation of a regulatory forum for pension product development and the launch of an upgraded Central KYC Registry in 2025, both of which will boost operational efficiency and transparency," said Sreekanth Nadella, MD & CEO, KFin Technologies Limited.
The primary objective of NPS Vatsalya is to encourage early retirement savings habits and secure long-term financial stability. Parents have the opportunity to open accounts for their children and contribute towards their retirement savings, promoting disciplined saving practices from an early stage.
Key features of NPS Vatsalya include:
Parents or guardians can initiate an NPS account for their children Minimum annual contribution is Rs 1,000 with no maximum limit The scheme is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA) Online opening of accounts is available through the eNPS platform The scheme is designed to assist in establishing long-term financial security for children.