NPS Vatsalya scheme was launched throughout final 12 months’s Finances. Throughout Finances 2025, Finance Minister gave readability on NPS Vatsalya Scheme Tax Advantages.

Discuss with my earlier posts on Finances 2025 – Budget 2025 – New Income Tax Slab Rates FY 2025-26 and Budget 2025 – 7 Key highlights impacting personal finance

NPS Vatsalya – A Pension Scheme for Minors

NPS Vatsalya is a pension scheme designed for Indian residents beneath 18 years outdated, regulated and managed by the Pension Fund Regulatory and Improvement Authority (PFRDA). It really works equally to the Public Provident Fund (PPF)—the account is opened within the title of the minor, however the guardian manages it. The minor stays the sole beneficiary, which means all of the funds within the account belong to them.

Refer an in depth publish on this “Budget 2024 – NPS Vatsalya Scheme – Should you invest?” and “NPS Vatsalya Scheme – Don’t Invest BLINDLY!!“.

Tax Advantages for NPS Vatsalya (Efficient from 1st April 2025)

From 1st April 2025, contributions made to an NPS Vatsalya account will obtain the identical tax advantages as common NPS investments beneath Part 80CCD of the Revenue Tax Act. Right here’s how:

1. Tax Deduction on Contributions (Part 80CCD(1B))

• The mum or dad/guardian contributing to the minor’s NPS Vatsalya account can declare a tax deduction of as much as ?50,000 per 12 months.
• This deduction applies to the whole quantity contributed to each the mum or dad’s personal NPS account and the baby’s NPS Vatsalya account mixed.
• Essential: This tax profit shouldn’t be accessible beneath the brand new tax regime—it may solely be claimed beneath the outdated tax regime.

2. Taxation on Withdrawals

• If a mum or dad/guardian has claimed a tax deduction on contributions made to the minor’s NPS Vatsalya account, then:
  • When the cash is withdrawn sooner or later (after the minor turns 18), each the unique contribution and the returns earned on it can be taxable within the 12 months of withdrawal.

3. No Tax on Withdrawals in Case of the Minor’s Dying

• If the minor passes away, the quantity acquired from closing the NPS Vatsalya account will not be thought of taxable revenue for the mum or dad/guardian.

4. Tax-Free Partial Withdrawals for Particular Wants

• Sure partial withdrawals are not taxable if they’re made for particular functions, reminiscent of:
  • Larger training of the minor
  • Medical therapy of great sicknesses
  • Incapacity-related bills
• Nevertheless, the tax-free restrict is 25% of the whole contributions made by the guardian. Any quantity withdrawn past this can be taxed.

Abstract

• NPS Vatsalya is a pension scheme for minors, managed by dad and mom/guardians.
• From 1st April 2025, contributions will get tax advantages beneath Part 80CCD(1B), with deductions as much as ?50,000 per 12 months.
• Withdrawals can be taxed if tax deductions had been claimed earlier.
• If the minor passes away, the withdrawn quantity shouldn’t be taxed.
• Partial withdrawals (as much as 25%) for training, medical therapy, or incapacity are tax-free.