NPS Vatsalya is a recently launched investment scheme by Finance Minister Nirmala Sitharaman, aimed at securing the retirement savings of minor children. It extends the benefits of the National Pension System (NPS) to minors, allowing parents or guardians to invest on behalf of their children, though the account itself is in the child’s name. Indian citizens, Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) under the age of 18 are eligible for the scheme.
- Eligibility: Available to Indian citizens, NRIs, and OCIs under 18.
- Account Holders: Parents or guardians can invest, but the account is opened in the child’s name.
- Account Transition: When the child turns 18, the account automatically converts into a standard NPS Tier 1 account.
Benifits of NPS:
- Salaried Individuals: Can claim up to 10% of their salary (Basic + DA) as deductions.
- Self-employed Individuals: Can claim up to 20% of their gross income.
- Tax Deductions: The overall limit for deductions under Section 80CCD(1) is Rs 1.5 lakh, which is part of the 80C ceiling, with an additional Rs 50,000 deduction under Section 80CCD(1B).
Tax Benefits for NPS Vatsalya:
However, NPS Vatsalya does not currently offer the same tax benefits as regular NPS accounts. While there is speculation about future tax deductions under Sections 80CCD(1) and 80CCD(1B) for NPS Vatsalya, Sumit Shukla, MD & CEO of Axis Pension Fund, clarified that no tax benefits are available yet. The Pension Fund Regulatory and Development Authority (PFRDA) is still in the process of issuing a tax notification for the scheme.
Conclusion:
NPS Vatsalya provides an excellent opportunity for parents to start planning their children’s financial future early, though it currently lacks tax incentives. Once the child reaches 18, the account will convert to an NPS Tier 1 account, and any eligible tax benefits can be claimed once the individual begins earning.
