The NPS Vatsalya Scheme, launched on September 18, 2024, allows parents or guardians to open National Pension Scheme (NPS) accounts for their minor children. Under Section 80CCD of the Income Tax Act, a deduction is currently available for contributions made to the NPS. The Finance Bill 2025 extends this benefit to contributions made to the NPS Vatsalya accounts of up to two minor children, allowing parents or guardians to claim a deduction under Section 80CCD(1B) for these contributions. The cumulative deduction limit of Rs. 50,000 for both the taxpayer’s own NPS contributions and those made for minor children will remain unchanged. Partial withdrawals of up to 25% of the contributions will be exempt from tax under Section 10(12BA), but the amounts previously deducted will be taxed when fully withdrawn. These tax benefits will be applicable from the 2025-2026 financial year, starting in the assessment year 2026-27.
Page Contents
- FAQs: Deduction u/s 80CCD for contributions made to the NPS Vatsalya – Budget 2025
- Q1. What is NPS Vatsalya Scheme?
- Q.2 What are the present provisions of section 80CCD?
- Q.3 What are the benefits allowed for NPS Vatsalya in Finance Bill, 2025?
- Q.4 What will happen to the contribution in NPS-Vatsalya when the amount is withdrawn?
- Q.5 When will the tax benefit for NPS-Vatsalya be available?
FAQs: Deduction u/s 80CCD for contributions made to the NPS Vatsalya – Budget 2025
Q1. What is NPS Vatsalya Scheme?
Ans. ➣ This Scheme was notified by the Pension Fund Regulatory and Development Authority and allows parents and guardians to maintain NPS account for their minor children.
➣ This Scheme was launched on 18.09.2024.
Q.2 What are the present provisions of section 80CCD?
Ans. ➣ Section 80CCD allows for a deduction to income for the contributions made to the National Pension Scheme either by an employer and an employee or by any assessee.
➣ The withdrawal of the contributions is taxable subject to certain conditions.
Q.3 What are the benefits allowed for NPS Vatsalya in Finance Bill, 2025?
Ans. Scope of section 80CCD is proposed to be extended:
➣ Deduction shall now be allowed to the parent/guardian under the old taxation regime for amount deposited in the account of any minor child (up to 2 children) under the NPS-Vatsalya also.
➣ Proposed deduction shall be allowed u/s 80CCD(1B).
➣ Overall cap of Rs. 50,000 under the said sub-section (cumulatively for self and such minor child (up to 2 children) shall continue as earlier.
Q.4 What will happen to the contribution in NPS-Vatsalya when the amount is withdrawn?
Ans. ➣ Partial withdrawal upto 25% of contribution, in accordance with the Scheme is allowed exemption u/s 10(12BA) by Finance Bill 2025.
➣ When the contribution is finally withdrawn, the amount on which deduction is allowed earlier, will be charged to tax
Q.5 When will the tax benefit for NPS-Vatsalya be available?
Ans. ➣ From previous year 2025-2026 i.e. assessment year 2026-27 onwards.
