Union Budget 2025: Extended Tax Benefits on contributions to NPS Vatsalya accounts

 

The Budget 2025 proposes to extend tax benefits to contributions made to NPS Vatsalya accounts under Section 80CCD(1B) of the Income-tax Act, 1961. This means that subscribers of NPS Vatsalya will receive the same tax benefits as regular NPS contributors ¹.

Here are the key details of the proposed tax benefits:

– Deduction Limit: A deduction of up to ₹50,000 per year will be allowed for contributions made to NPS Vatsalya accounts.

– Tax Benefits: The tax benefits will be available to parents or guardians who contribute to NPS Vatsalya accounts on behalf of minor children.

– Effective Date: The proposed tax benefits will take effect from April 1, 2026, and will apply to the assessment year 2026-2027 and subsequent assessment years.

NPS Vatsalya is a retirement plan designed for minor children, allowing parents or guardians to invest in a pension account on their behalf. The scheme aims to provide a secure financial future for children with disabilities

The tax benefits for NPS Vatsalya contributions are not available under the new tax regime except for 80CCD(2) I.e.. EMPLOYER’S CONTRIBUTION, the conditions for allowability under old tax regime are as follows

– Employer’s Contribution: The tax deduction for employer contributions to NPS is available under the new tax regime, with a limit of 14% of the employee’s salary.

– Self-Contribution: However, the tax deduction for self-contributions to NPS under Section 80CCD(1B) is not available under the new tax regime.

– Tax Benefits: The tax benefits for NPS Vatsalya contributions are available under Section 80CCD(1B), which allows for a tax deduction of up to ₹50,000.

It’s essential to note that the new tax regime has different rules and limitations compared to the old tax regime. Therefore, it’s crucial to consult with a tax professional or financial advisor to understand the specific tax implications for your NPS Vatsalya contributions.