NPS Vatsalya Scheme: How To Apply, Eligibility, Tax Benefits For New Pension Scheme For Minor Children

Finance Minister Nirmala Sitharaman has introduced a new pension scheme for minors, allowing parents to contribute towards their children's future retirement. The Union Budget 2024, presented on July 23, unveiled the NPS Vatsalya scheme. This initiative enables parents or guardians to plan a pension for their children.

The NPS Vatsalya scheme is designed for minors, with contributions made by parents or guardians. Once the child turns 18, the scheme transitions into a regular National Pension Scheme (NPS). Ranbheer Singh Dhariwal, CEO of Max Life Pension Fund Management, stated, "By allowing parents and guardians to initiate their minor child's NPS account, the initiative sets the foundation for responsible financial management from an early age. As these accounts transition into regular NPS plans upon adulthood, they provide a smooth continuation of savings habits into adulthood."

NPS Vatsalya: A New Pension Scheme for Minors

The National Pension Scheme (NPS) is a voluntary pension system available to all citizens, including residents and NRIs aged between 18 and 70 years. It is a market-linked contribution scheme that allows Indian citizens to systematically save for their retirement while also enjoying tax benefits.

Tax benefits are available under various sections of the Income Tax Act. For self-contributing employees, there is a tax deduction of up to 10% of salary (Basic + DA) under section 80 CCD(1), within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE. Additionally, there is an extra deduction of up to ₹50,000 under section 80 CCD(1B) over and above this limit.

Tax Benefits with NPS

For employees whose employers contribute to their NPS accounts, there is a tax deduction of up to 10% of salary (Basic + DA), which increases to 14% if the contribution is made by the Central Government. This deduction is provided under Section 80 CCD(2), over the limit of Rs. 1.50 lakh under section 80 CCE.

The Union Budget 2024 has increased the employer's contribution deduction for private sector employees from 10% to 14% of salary in the new tax regime. Self-employed individuals can also benefit from a tax deduction of up to 20% of gross income under section 80 CCD(1), within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE. An additional deduction of up to ₹50,000 is available under section 80 CCD(1B).

Who is eligible for NPS Vatsalya?

All parents and guardians, including Indian citizens, NRIs, and OCIs, are eligible to open an NPS Vatsalya account for their minor children.

How to Open/Apply NPS Vatsalya Scheme?

• To open an NPS account, visit either the official eNPS website or any authorised bank or financial institution offering NPS services.
• Click on 'Registration’ and select 'new registration’.
• Applicants need to provide their Aadhaar or PAN number, mobile number, and e-mail ID.
• They must also choose one among three central recordkeeping agencies to maintain their NPS account details.
• After OTP validation, personal details have to be filled in.

This new scheme aims at fostering long-term financial security by encouraging early savings habits among minors through parental contributions.