Higher tax deduction for NPS Vatsalya investments: Why SBI Research wants this in Budget 2026

As the Union Budget 2026–27 approaches, SBI Research has called for a higher tax deduction for investments under the NPS Vatsalya scheme to strengthen India’s pension ecosystem and boost long-term financial security.

In its Prelude to Union Budget 2026–27 report, SBI Research noted that the global economy is grappling with heightened fragmentation, volatile financial markets and rising commodity prices, making fiscal prudence and domestic financial stability critical for India. Against this backdrop, the think tank stressed the need to deepen pension penetration, particularly for younger and informal participants.

"NPS Vatsalya scheme launched on 18 September 2024, but only 1.3 lakh subscribers are enrolled till August 2025. So, there is a need to push this scheme by increase in deduction limits under Section 80CCD(1B) for NPS contributions," said SBI Research in its Prelude to Union Budget 2026-27 report.

To address this, SBI Research has recommended an increase in the deduction limit under Section 80CCD(1B) for NPS contributions, similar to the additional tax benefits available for standard NPS investments.

The recommendation comes as part of broader suggestions on pension reform. SBI Research also advocated for expanding the reach of the Unified Pension Scheme launched in April 2025 by bringing in more state government and PSU employees.

The recommendations form part of SBI Research’s wider expectations from Budget 2026–27, which it believes should balance fiscal consolidation with structural reforms to strengthen India’s growth resilience.