NPS Vatsalya is a pension scheme designed to encourage early savings and long-term financial planning for children. It is part of the National Pension System (NPS) and allows parents or guardians to open an account in a minor's name.
As parents keep contributing, the fund grows based on market performance and can help in money management. Over long-term, the contribution and potential returns can lead to a retirement-oriented corpus through the power of compounding.
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How does an NPS Account Work?
Under NPS Vatsalya, the minor is the subscriber and sole beneficiary of the account. A Permanent Retirement Account Number (PRAN) is issued in the child's name. The parent or legal guardian manages and operates the account until the child turns 18, helping build long-term savings for the child's financial future.
Tax Benefits
Under the old tax regime, NPS Vatsalya offers tax benefits. The Rs 50,000 deduction under Section 80CCD(1B) is a combined limit for eligible contributions to your own NPS Tier-I account and your child's NPS Vatsalya account. If you have already exhausted this limit through your own NPS contributions, you cannot claim an additional Rs 50,000 for NPS Vatsalya.
Example:
- Personal NPS Tier-I contribution: Rs 50,000
- Contribution to NPS Vatsalya: Rs 30,000
- Maximum deduction under Section 80CCD(1B): Rs 50,000
- Total contributions: Rs 80,000
- Deduction claimed: Rs 50,000
Since the taxpayer has already contributed Rs 50,000 to their own NPS Tier-I account, the full deduction limit under Section 80CCD(1B) is exhausted. This means that the additional Rs 30,000 contributed to NPS Vatsalya does not qualify for any further deduction under this section.
Is Rs 50,000 Deduction Applicable In New Regime?
Under the new tax regime, contributions to an NPS Vatsalya account generally do not qualify for tax deductions. This means that a Rs 50,000 deduction benefit cannot be claimed. Therefore, parents opting for the new regime should view NPS Vatsalya as a savings tool rather than a tax benefit tool.
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