NPS Vatsalya now eligible for tax deduction of Rs 50,000 under old regime

The NPS Vatsalya Scheme was officially launched on September 18, 2024

While Budget 2025 did not revise income tax slabs and rates under the old tax regime, it has extended the tax deduction benefit of Rs 50,000 under the old tax regime to NPS Vatsalya scheme.

“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,” Union finance minister Nirmala Sitharaman said in her Budget speech.

As per the Finance Bill, a deduction would be allowed to the parent/guardian’s total income, of the amount paid or deposited in the account of any minor under the NPS to a maximum of Rs 50,000/- overall as mandated under sub-section (1B) of section 80CCD.

The NPS Vatsalya Scheme, officially launched on September 18, 2024, enables parents and guardians to start a National Pension Scheme (NPS) account for their children.

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This savings-cum-pension scheme is designed exclusively for minors and will be operated by the guardian for the exclusive benefit of the minor till they attain majority.

When a minor attains 18 years, the account will continue to be operational, transferred to the child's name with the accumulated corpus and will be shifted into the NPS-Tier 1 Account - All Citizen Model or other non-NPS scheme account.

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The objective of the scheme is to create a corpus for their children over the long term. Parents or guardians can contribute a minimum of Rs 1,000 annually, without any maximum investment limit.

The effect of compounding over the long-term can ensure that even smaller amounts invested regularly grow into a substantial corpus by the time children turn into adults and start drawing their own income. It will also inculcate savings discipline for children as also their parents.