New Pension Scheme for Minors in Union Budget 2024: NPS Vatsalya Explained

In the Union Budget 2024, Finance Minister Nirmala Sitharaman announced the introduction of a new pension scheme designed specifically for minors, named the NPS Vatsalya. This initiative allows parents or guardians to start a pension plan for their children, setting the stage for early financial planning.

According to an Economic Times report, Ranbheer Singh Dhariwal, CEO of Max Life Pension Fund Management, commented on the scheme’s significance: “By enabling parents and guardians to open NPS accounts for their minor children, this program fosters responsible financial management from a young age. These accounts will seamlessly convert to regular NPS plans once the child turns 18, promoting continued savings habits into adulthood.” Dhariwal also noted that the proposed increase in employer contributions to NPS from 10% to 14% further strengthens the role of employers in ensuring long-term financial security for their employees.

What is NPS Vatsalya?

NPS Vatsalya is a pension scheme for minors where contributions are made by parents or guardians. Upon reaching the age of 18, the scheme will transition into a standard NPS plan.

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What is the National Pension Scheme (NPS)?

The National Pension Scheme (NPS) is a voluntary retirement savings plan available to all Indian citizens, including residents and NRIs, aged 18 to 70. It is a market-linked contribution scheme that helps individuals systematically save for retirement while offering tax benefits.

Current Tax Benefits with NPS:

For self-contributing employees:

• Tax deduction up to 10% of salary (Basic + DA) under Section 80 CCD(1), within the overall ceiling of ₹1.50 lakh under Section 80 CCE.
• Additional tax deduction up to ₹50,000 under Section 80 CCD(1B), beyond the ₹1.50 lakh ceiling under Section 80 CCE.

For employees with employer contributions:

• Tax deduction up to 10% of salary (Basic + DA) (or 14% if contributed by the Central Government) under Section 80 CCD(2), beyond the ₹1.50 lakh ceiling provided under Section 80 CCE.

The Union Budget 2024 has increased the maximum employer contribution deduction for private sector employees from 10% to 14% of salary.

For the self-employed:

• Tax deduction up to 20% of gross income under Section 80 CCD(1), within the ₹1.50 lakh ceiling under Section 80 CCE.
• Additional tax deduction up to ₹50,000 under Section 80 CCD(1B), beyond the ₹1.50 lakh ceiling under Section 80 CCE.

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How to Open an NPS Account:

1. Visit the official eNPS website or the site of any authorized banks or financial institutions that offer NPS services.
2. Click on ‘Registration’ and select ‘New Registration’.
3. Provide your Aadhaar or PAN number, mobile number, and email ID. Choose one of the three central recordkeeping agencies to maintain your NPS account.
4. Complete the OTP validation and fill in your personal details.

This new scheme aims to enhance financial planning for future generations and provides a robust framework for sustained retirement savings.