NPS Vatsalya gets tax benefits in Budget 2025-26; Here’s what it means for parents

Finance Minister Nirmala Sitharaman on Saturday announced tax benefits for contributions made to the NPS Vatsalya scheme, bringing it in line with the regular National Pension System (NPS) under the Union Budget 2025-26.

Presenting the Budget in Parliament, Sitharaman proposed that NPS Vatsalya accounts be given the same tax treatment as normal NPS accounts, subject to overall limits.

"A number of senior and very senior citizens have very old National Savings Scheme accounts. As interest is no longer payable on such accounts, I propose to exempt withdrawals made from NSS by individuals on or after the 29th of August, 2024," Sitharaman said.

"I am also proposing to allow similar treatment to NPS Vatsalya accounts as is available to normal NPS accounts, subject to overall limits."

What it means for taxpayers

The proposal extends the benefits of Section 80CCD(1B) of the Income-tax Act, 1961, to contributions made under the scheme, allowing for deductions on investments up to ₹50,000 annually.

Launched on September 18, 2024, in New Delhi, NPS Vatsalya is a pension scheme designed exclusively for minors, enabling parents to invest in their children’s future. The scheme allows parents or guardians to open a pension account in the name of a child and contribute a minimum of ₹1,000 annually, with no upper limit.

Upon reaching adulthood, the account can be converted into a regular NPS account or another non-NPS scheme.

The scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA) and can be accessed through registered Points of Presence (PoPs), including major banks, India Post, and pension funds. Online registration is also available through the NPS Trust’s eNPS platform.

With the latest tax benefit extension, NPS Vatsalya is expected to gain further traction as a structured financial planning tool for securing children's financial future, offering the advantages of compounding and disciplined investment from an early age.