What is the NPS Vatsalya Scheme?       

The NPS Vatsalya scheme, introduced in Budget 2024, is a special version of the National Pension System (NPS). This initiative allows parents and guardians to start saving for their minor child’s retirement. By contributing to an NPS account in the child’s name, they can build a secure financial future right from an early age.       

How to apply?      

The NPS for minors can be opened through Point of Presence (POPs) registered with PFRDA, either online or in person, via major banks, India Post, pension funds, and others. A full list of POPs is available on the PFRDA website ( www.pfrda.org.in ).      

Why Start Saving Early for Retirement?       

Saving for retirement is often seen as something that adults need to focus on once they start earning. However, the NPS Vatsalya scheme changes that by encouraging families to begin saving for retirement while the child is still young. By starting early, there is more time for the money to grow, thanks to the power of compounding. This means that small contributions made over a long period can result in significant savings by the time the child reaches adulthood.       

How Does the Scheme Work?       

The NPS Vatsalya scheme is simple. Parents or guardians can open an NPS account in the name of their minor child. Regular contributions can be made to this account, which will be invested in a market-linked plan, just like the regular NPS. Once the child turns 18, the account automatically transitions into a standard NPS account.       

This transition ensures that the child continues with the savings habit into adulthood, laying the foundation for a secure retirement plan. The funds accumulated in the account can be accessed upon the individual’s retirement, providing them with financial security in their later years.       

Tax Benefits for Parents and Guardians       

One of the most appealing features of the NPS Vatsalya scheme is the tax benefits it offers to the contributors. Contributions made by parents or guardians towards the NPS account of their minor child are eligible for tax deductions under Section 80 CCD(2) of the Income Tax Act. This helps parents reduce their taxable income, effectively saving money while securing their child’s future.       

If an employer contributes to the NPS, the parent can claim deductions of up to 10% of their salary (Basic + Dearness Allowance), with the limit going up to 14% for Central Government employees. These deductions are available over and above the standard Rs 1.5 lakh deduction under Section 80 CCE for other tax-saving investments.       

Flexibility and Control       

The NPS Vatsalya scheme is designed with flexibility in mind. When the child reaches the age of 18, parents have the option to continue with the NPS plan or convert it into a non-NPS investment plan. This gives families control over the child’s financial future even as they become adults.       

It is also important to note that checks/balances will be put in place to ensure that parents retain control over the funds and savings they have made for their child’s future, even after the child reaches adulthood.       

The NPS Vatsalya scheme offers a structured and flexible way to plan for a child’s retirement from an early age. It helps families take advantage of tax benefits while building long-term financial security. Starting retirement savings early ensures that the child will be financially prepared when they grow older, making it a beneficial initiative for families looking to secure the future.