NPS Vatsalya Is the Child Investment with Tax Benefits

Q: What is the maximum tax benefit available?

You can claim up to â¹1.5 lakh under Section 80C and an additional â¹50,000 under Section 80CCD(1B), totalling â¹2 lakh per financial year in the Old Tax Regime.

Q: Are NPS Vatsalya tax benefits available in the New Tax Regime?

No, the additional â¹50,000 deduction under Section 80CCD(1B) is not available under the New Tax Regime. It applies only under the Old Tax Regime.

NPS Vatsalya Tax Benefits

NPS Vatsalya offers significant tax benefits to parents and guardians investing for their minor children, especially after the Union Budget 2025. The scheme provides an additional ₹50,000 tax deduction under Section 80CCD(1B) of the Income Tax Act, apart from existing savings under Section 80C, making it a highly tax-efficient option for child-focused long-term investment.

What is NPS Vatsalya?

NPS Vatsalya is a targeted investment fund under the National Pension System designed exclusively for minors under 18. This particular NPS account is managed by a parent or guardian. At 18, it converts to a standard NPS Tier-1 account, ensuring long-term wealth creation and financial discipline for children.

Key NPS Vatsalya Scheme Tax Benefits

Additional Deduction Under Section 80CCD(1B): Contributions to the NPS Vatsalya account are eligible for an extra deduction of up to ₹50,000 per financial year. This is over and above the standard deduction of ₹1.5 lakh under Section 80C.

Eligibility for Old and New Tax Regimes: In Budget 2025, the government clarified that the ₹50,000 additional deduction is applicable under both the Old and New Tax Regimes, making the scheme flexible for a broader base of taxpayers.

Tax-Free Growth: All investments made in the NPS Vatsalya account grow tax-free until withdrawal, supporting long-term wealth creation for a child’s future needs.

Partial Withdrawals: Up to 25% of own contributions can be withdrawn for specific purposes (like education or illness) without any tax implications.

No Maximum Contribution Limit: There is no upper cap on how much can be contributed, though only the prescribed deductions are tax-free.

Additional Features Supporting Tax Efficiency

No Maximum Limit: Contributions above the deduction threshold are allowed, enhancing flexibility.

Partial Withdrawals: Up to 25% permitted after three years for specific needs like education or illness without affecting the tax benefits.

Minimum Investment: Only ₹1,000 per year required, making it accessible for many families.

NPS Vastalya vs Regular National Pension Scheme

Feature

NPS Vatsalya

Regular NPS

Who Can Open

Parent/Guardian on behalf of a minor (below 18)

Any Indian citizen aged 18–75 years

Beneficiary

Minor child

Account holder

Account Management

Operated by parent/guardian until child turns 18

Self-managed

Conversion/Transition

Converts to regular NPS at 18; fresh KYC needed

N/A

Minimum Contribution

₹1,000 per year

Maximum Contribution

No upper limit

Lock-in Period

Till age 18 of the child

Till age 60 of subscriber

Partial Withdrawal

Up to 25% for ed./illness (max 3 times before 18)

Up to 25% after 3 yrs for allowed reasons

Tax Deductions

Up to ₹1.5 lakh (Sec 80C) + ₹50,000 (80CCD(1B))

Investment Options

Equity, Debt, Govt. Securities (like NPS)

Equity, Debt, Govt. Securities

Suitability

Early financial start for children

Retirement planning for adults

Corpus at Maturity

Potentially higher (longer tenure, more compounding)

Depends on age and contribution duration

FAQs

Who can claim the NPS Vatsalya tax benefits?

Parents or legal guardians investing in an NPS Vatsalya account for their minor child can claim the deduction.

What is the maximum tax benefit available?

You can claim up to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B), totalling ₹2 lakh per financial year in the Old Tax Regime.

Are NPS Vatsalya tax benefits available in the New Tax Regime?

No, the additional ₹50,000 deduction under Section 80CCD(1B) is not available under the New Tax Regime. It applies only under the Old Tax Regime.

Can NRIs open an NPS Vatsalya account and claim tax benefits?

NRIs can open an account for their minor children if eligible, but the allowance for tax deduction depends on their Indian income tax status and existing rules.

How are withdrawals taxed in NPS Vatsalya?

Withdrawals are taxed as per standard NPS tax rules, with certain exemptions for partial withdrawals made for designated purposes like education or severe illness.

Is there an upper limit to contributions in NPS Vatsalya?

No, there is no upper ceiling on contributions, though only up to the allowable deduction will be tax-free.

What happens to the account when the child turns 18?

At 18, the account transitions to a normal NPS Tier-1 account or another approved scheme, and further contributions can continue for retirement corpus creation.