NPS Vatsalya: From Tax Benefit To Withdrawal, Pension Scheme For Minors Explained

The government launched NPS Vatsalya, a pension scheme exclusively for minors, to promote financial discipline from a young age. Launched on Sep. 18, 2024, NPS Vatsalya extends benefits of the National Pension System (NPS) to children, enabling families to begin retirement savings on their behalf well before they reach adulthood.

Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS Vatsalya scheme is an initiative that allows minors to have a National Pension System (NPS) account. Traditionally, NPS accounts are only available to people above 18. With NPS Vatsalya, parents or legal guardians can now start building a pension corpus for their children from an early age.

Any Indian citizen, including minors aged below 18, can be enrolled under the scheme. The account must be opened and managed by a parent or legal guardian until the child turns 18. Once the minor reaches adulthood, the account is transferred to their name, allowing them to manage and contribute to it independently.

Contributions to an NPS Vatsalya account can be made regularly by the guardian. The minimum annual contribution must be Rs 1,000.

The account can be opened through both online and offline modes. Many banks, post offices and authorised financial service providers offer this facility. Online platforms allow quick onboarding, making it hassle-free for users. Offline registration usually requires physical verification of documents and form submission.

The NPS Vatsalya account is opened by a natural or legal guardian in the name of the minor, who is the sole beneficiary. A unique Permanent Retirement Account Number (PRAN) is generated in the minor’s name. Until the child turns 18, the guardian manages and operates the account on their behalf.

To open an account, the parent or guardian needs to submit their identity and address proof (such as Aadhaar, PAN), along with the minor’s birth certificate and a recent photograph. A declaration stating the relationship between the guardian and the minor is also required.

Under the NPS Vatsalya Scheme, partial withdrawals are allowed before the child reaches 18 years of age. Parents or guardians can withdraw only after completing three years of account opening. They are permitted to withdraw up to 25% of the contributions made and can avail this facility only three times during the tenure of the account. Withdrawals are allowed for specific reasons such as the child’s education, disability of more than 75%, or treatment of specified diseases, as outlined by the PFRDA. 

The NPS Vatsalya Scheme offers an interest rate ranging between 9.5% and 10%. However, there is no fixed return rate and it can fluctuate based on multiple factors.

Parents contributing to an NPS Vatsalya account can avail tax benefits under Section 80CCD(1B) of the Income Tax Act, 1961. They are eligible to claim an additional deduction of Rs 50,000 over and above the Rs 1.5 lakh limit allowed under Section 80C for their contributions to the scheme.