NPS Vatsalya
The latest Union Budget has expanded tax deductions for contributions made to the National Pension System's Vatsalya child welfare pension program. Under the revised Section 80CCD(1B), parents can claim deductions up to â¹50,000 for deposits into their child's NPS account, over and above the existing â¹1.5 lakh deduction limit under Section 80C.
The program is managed by the Pension Fund Regulatory and Development Authority (PFRDA) and aims to incentivise long-term savings for major future expenses related to children's needs. The tax benefit may make it more attractive for parents to invest in securing funds for their child's higher education, marriage, or other financial needs after they reach adulthood. By channelling savings into the NPS early on, parents can also take advantage of the power of compounding returns over the long term.
The Key Highlights of the Proposed Changes:
The NPS scheme details will help parents and legal guardians to start investing early for their children's key financial needs. By opening this pension account, they can accumulate a retirement corpus to financially secure their child's future.
Some key benefits of investing in the NPS Vatsalya plan:
With the latest tax deduction, the NPS Vatsalya government-regulated program becomes even more lucrative for parents.
The parent/guardian contributing to the NPS Vatsalya account can claim a deduction of up to â¹50,000 in a financial year. This is over and above the â¹1.5 lakh deduction limit under Section 80C.
For example, if a parent invests â¹75,000 in their child's NPS account, they can claim â¹50,000 as a deduction under the new Section 80CCD (1B) rule. The remaining â¹25,000 will be covered under the â¹1.5 lakh limit of Section 80C.
Thus, this additional deduction limit incentivises more long-term retirement savings for the child's future needs.
As per the new provisions, account holders can withdraw up to 25% of their contributions without paying any tax on that amount. This withdrawal limit aims to provide people with more flexibility to meet children's educational costs, medical treatment expenses for specified illnesses, disability-related requirements, etc, while retaining the overall tax efficiency of the NPS initiative.
For example, if someone has contributed â¹3 lakhs to their NPS account over the years, they would be able to withdraw up to â¹75,000 tax-free under this provision. This feature gives people a way to address contingencies pertaining to children's needs while continuing to save for their own retirement under the NPS framework. The partial withdrawal eligibility provides an extra layer of financial security for families saving via NPS.
Parents can easily open an NPS Vatsalya account online via the Protean eNPS platform or through Points of Presence (POPs). The online process takes less than 10 minutes.
The required documents include ID/address proof of parent and child, child's birth certificate, bank details and recent photograph. Permanent Account Number (PAN) is mandatory.
Once opened, the account is managed by the parent/guardian till the child turns 18 years old. On attaining majority, the child has the option to continue or withdraw as per the system rules.
The entire process is paperless and completed online through Aadhar-based authentication. This makes it convenient for parents to open and manage the NPS Vatsalya account seamlessly.
The NPS Vatsalya initiative enables disciplined long-term investing to create a retirement corpus for children. It inculcates the habit of systematic savings from an early age.
With attractive returns potential and now tax benefits, the initiative offers a flexible, low-cost channel for parents to financially secure their children's future.
The tax relief on contributions and withdrawals also makes it more lucrative for investors. Overall, the NPS Vatsalya aims to expand the reach of pension investments and enhance citizens' retirement readiness.
Starting early is the key to building a sizeable retirement corpus through the power of compounding. The NPS Vatsalya allows parents to apply this principle to their children's future needs.
Some tips to maximise returns from NPS Vatsalya:
As per Pension Fund Regulatory and Development Authority (PFRDA) projections, an annual contribution of â¹10,000 invested from birth to 25 years at an expected return rate of 12% can grow to around â¹35 lakhs on maturity. This showcases the immense potential of long-term investing through NPS Vatsalya.
The NPS Vatsalya initiative provides a structured way for parents to secure their child's financial future while enjoying tax benefits. With an additional â¹50,000 tax deduction under Section 80CCD(1B), this initiative incentivises long-term savings, making it a smart investment choice. The flexibility of withdrawals, low-cost structure, and attractive returns further enhance its appeal.
By starting early and contributing consistently, parents can build a strong retirement corpus for their children. With simple account opening and seamless management, NPS Vatsalya is a valuable step toward financial security for the next generation.
