During her Union budget speech on Feb 1, 2025, Finance Minister Nirmala Sitharaman proposed extending the National Pension System (NPS) tax benefits under Section 80CCD (1B) to the NPS Vatsalya scheme, effective April 1, 2025. “It is proposed to extend the tax benefits available to the National Pension Scheme under sub-section (1B) of section 80CCD of the Income-tax Act, 1961 to the contributions made to the NPS Vatsalya accounts,” Sitharaman announced. What is Section 80CCD (1B)? Under Section 80CCD (1B), investors can claim additional tax benefits of up to ₹50,000, beyond the ₹1.50 lakh limit under Section 80CCD (1). However, these benefits remain exclusive to the old tax regime, while the new regime only offers benefits under Section 80CCD (2) for employer contributions. CA Ashish Niraj, Partner, ASN Company, Chartered Accountants, says, “Budget 2025 has extended Section 80CCD (1B) benefits to NPS Vatsalya, covering up to two children. “The scheme also receives tax exemptions under Section 12(B) and 80CCD (3), while maintaining the combined ₹50,000 deduction limit for self and Vatsalya accounts. “With subscriber numbers below one lakh in its initial phase, these tax advantages are expected to boost the scheme's adoption.” About NPS Vatsalya Launched in September 2024, NPS Vatsalya operates as a specialised pension scheme for minors under the Pension Fund Regulatory and Development Authority (PFRDA). The scheme allows accounts for individuals less than 18 years, with automatic conversion to Tier-I NPS accounts upon reaching adulthood. Source: Finance Ministry Changes make NPS Vatsalya more attractive Abhishek Kumar, a Sebi-registered investment advisor, says, “The changes are intended to make the scheme more lucrative to parents so that they start saving money for their children. “From 1st April, 2025 contribution to NPS Vatsalya account would enjoy same benefits as is accorded to regular NPS account, subject to overall limits, under the old tax regime. “This means that these accounts would also enjoy tax exemptions of up to ₹50,000 annually under Sections 80CCD (1B) over and above Section 80C limit of ₹1.5 lakh.” Looking Ahead The government's move appears to be part of a broader strategy to encourage long-term savings, particularly for the younger generation. However, with the clear shift towards the new tax regime and existing challenges in retirement planning awareness, the scheme's effectiveness remains to be seen.Original Article