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  5. I am contributing to my NPS and my son’s NPS Vatsalya account. How much deduction can I claim?

Personal Finance News

I am contributing to my NPS and my son’s NPS Vatsalya account. How much deduction can I claim?

rajeev kumar
By Rajeev Kumar

4 min read | Updated on February 05, 2025, 11:55 IST

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SUMMARY

Maximum Deduction for NPS and NPS Vatsalya account contributions: The Government of India offers various tax deductions to incentivise investments in government-approved programs. One such provision is the deduction under Section 80CCD, which applies to investments made in the National Pension Scheme (NPS).

NPS deduction rules

The government in Budget 2025 proposed extending Section 80CCD tax benefits to contributions made to NPS Vatsalya accounts. | Representational image source: Shutterstock

Question: Could you provide clarity on the maximum deduction I can claim for both my personal NPS contributions as well as the contributions made to the NPS Vatsalya account for my son?

The maximum deduction you can claim on your contributions to your National Pension System (NPS) account and your child's NPS Vatslaya account will be ₹2 lakh, including ₹1.5 lakh under section 80CCD(1) and ₹50,000 under section 80CCD(1B).

CA Dr Suresh Surana provides full clarity on the taxation of NPS and NPS Vatsalya accounts as follows:

The Government of India offers various tax deductions to incentivise investments in government-approved programs. One such provision is the deduction under Section 80CCD, which applies to investments made in the National Pension Scheme (NPS).

Section 80CCD of the Income Tax Act, 1961 provides tax deductions for contributions made to the National Pension System (NPS) and Atal Pension Yojana (APY). This section is divided into three subsections: 80CCD(1), 80CCD(1B), and 80CCD(2), each covering different aspects of deductions and eligibility.

ParticularsDescriptionDeduction
Section 80CCD(1) (Employee and self-contribution to NPS)Any individual (salaried or self-employed) contributing to NPS. The maximum deduction is ₹1.5 lakh, which is part of the overall limit of section 80C.For salaried individuals: 10% of salary (Basic + DA). For self-employed individuals: 20% of gross total income.
Section 80CCD(1B) (Additional deduction for NPS contributions)An additional deduction under section 80CCD(1B) is available for contributions made to NPS, and this deduction is not subject to the overall ceiling limit of ₹1,50,000 u/s 80C. However, when claiming this deduction, taxpayers must ensure that there is no duplication of claims—the same contribution amount cannot be claimed under both section 80CCD(1B) and section 80CCD(1).₹50,000
Section 80CCD(2) (Employer’s contribution to NPS)Deduction in respect of amount paid/deposited by an employer in NPS to be determined in the manner specified.The maximum deduction allowed is: 10% of salary (Basic + DA) for private-sector employees 14% of salary (Basic + DA) for Central Government employees Note: In case of a taxpayer opting for new tax regime u/s 115BAC, deduction upto 14% can be claimed by an employee, irrespective of their nature i.e. Government or Private.

Under section 80CCD(1B), an additional deduction is available for contributions made to NPS, and this deduction is not subject to the overall ceiling limit of ₹1,50,000 under section 80C.

The central government introduced the NPS Vatsalaya Yojana in Budget 2024, allowing parents and guardians to open a NPS account for minors. The guardian manages the account until the child turns 18, after which it transitions into the child's name and shifts into an NPS-Tier 1 account (All Citizen Model) or another non-NPS scheme.

To encourage savings for minors, the government proposed extending Section 80CCD tax benefits to contributions made to NPS Vatsalya accounts in in Budget 2025:
  • Tax deduction for contributions: Parents/guardians can claim a deduction up to ₹50,000 per year u/s 80CCD(1B) for deposits made in the minor’s NPS Vatsalya account.
  • Taxation on withdrawal: Amounts for which deductions have been claimed, along with accrued income, will be taxable at the time of withdrawal when the minor accesses the funds.
  • Exemption in case of minor’s death: If the account is closed due to the minor’s death, the received amount will not be considered taxable income for the parent/guardian.

Additionally, the scheme permits partial withdrawals for specific contingencies such as education, medical treatment for serious illnesses, or disability (above 75%). To facilitate this, a new clause (12BA) in Section 10 is proposed, exempting partial withdrawals up to 25% of contributions from the guardian’s taxable income, provided they comply with PFRDA regulations.

Once the Finance Act 2025 is passed, these amendments will be effective from Financial Year 2025-26 and beyond.

Upstox

About The Author

rajeev kumar
Rajeev Kumar is a Deputy Editor at Upstox, and covers personal finance stories. In over 11 years as a journalist, he has written over 2,000 articles on topics like income tax, mutual funds, credit cards, insurance, investing, savings, and pension. He has previously worked with organisations like 1% Club, The Financial Express, Zee Business and Hindustan Times.

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