Parents Eligible for Tax Benefits Exceeding Rs 50,000 Under NPS Vatsalya Scheme

NPS Vatsalya: A Voluntary Retirement Savings Plan for Minors

The National Pension System (NPS) is a voluntary, long-term retirement savings plan that enables individuals to build a pension corpus through market-linked investments, while also offering tax benefits. Building on this framework, the NPS Vatsalya permits parents or guardians to open and contribute to an NPS account on behalf of a minor, fostering early retirement planning.

The account is operated by the guardian until the child attains the age of 18 years, after which it transitions into a regular NPS account. Under the old tax regime, Section 80CCD (1B) provides for a deduction of up to Rs 50,000 for contributions made to the Vatsalya scheme. This deduction is available in addition to the combined limit of Rs 1.5 lakh prescribed under Section 80C, Section 80CCC, and Section 80CCD(1).

Key Deduction Limit

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Under the 2025 Finance Act, parents and guardians can claim tax deductions for contributions made to a minor’s NPS Vatsalya account. Taxpayers opting for the new tax regime will not be able to avail this deduction. The deduction limit of Rs 50,000 under Section 80CCD(1B) is subject to an aggregate cap, and contributions made to an individual’s own NPS account, as well as those made to a minor’s NPS Vatsalya account, are required to be considered collectively for the purpose of computing the eligible deduction.

Thus, while NPS Vatsalya expands the scope of eligible contributions, it does not increase the overall deduction limit. The maximum additional deduction is restricted to Rs 50,000 in aggregate, and not Rs 1 lakh.