The Indian government has proposed to extend tax benefits to contributions made to the National Pension Scheme (NPS) Vatsalya accounts, as announced in the Budget 2025. This move aims to make the scheme more attractive for parents and guardians looking to secure their children’s financial future.

NPS Vatsalya is a pension scheme specifically designed for minors, allowing parents or guardians to invest in their children’s future. The scheme was launched on September 18, 2024, and enables individuals to open a pension account in the name of a child and contribute a minimum of Rs 1,000 annually. There is no upper limit for contributions.

Key Points:

  • Tax Benefit: Contributions to NPS Vatsalya will now be eligible for tax benefits under Section 80CCD(1B) of the Income-tax Act, 1961.
  • Deduction Limit: A deduction of up to Rs 50,000 per year will be allowed for contributions made to NPS Vatsalya accounts.
  • Eligibility: Parents or guardians who have opened an NPS Vatsalya account for their minor child are eligible for this tax benefit.
  • Overall Limit: This deduction is over and above the existing Rs 1.5 lakh limit under Section 80C for various investments, including NPS.
  • Withdrawal Taxation: The amount withdrawn from the NPS Vatsalya account will be taxed in the hands of the child when they attain majority. However, the amount received on the death of the minor will not be considered as income of the parent/guardian.

The extension of tax benefits to NPS Vatsalya contributions is expected to encourage more parents and guardians to invest in the scheme, securing their children’s financial future while also enjoying tax advantages.

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