NPS Vatsalya is designed to help parents and guardians kickstart their child’s retirement savings journey early on. (Representative image)
NPS Vatsalya is a new pension scheme introduced in India’s Union Budget 2024.
To make the New Pension Scheme (NPS) more attractive under the new tax regime, Finance Minister Nirmala Sitharaman proposed to increase tax deductions for employers’ contributions to 14 per cent from 10 per cent.
The minister also proposed to start ‘NPS-Vatsalya’, a plan for contribution by parents and guardians for minors.
What Is NPS-Vatsalya?
NPS Vatsalya is a new pension scheme introduced in India’s Union Budget 2024. It’s designed to help parents and guardians kickstart their child’s retirement savings journey early on.
On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account.
While the scheme has been announced, specific details like eligibility criteria, contribution limits, investment options, and tax benefits are awaited. However, experts feel that the scheme will promote responsible financial planning and ensure retirement security.
Ranbheer Singh Dhariwal, CEO, Max Life Pension Fund Management, said, “NPS Vatsalya is a commendable step forward in promoting retirement savings and fostering long-term financial security. By allowing parents and guardians to initiate their minor child’s NPS account, the initiative sets the foundation for responsible financial management from an early age. As these accounts transition into regular NPS plans upon adulthood, they provide a smooth continuation of savings habits into adulthood.”
Sriram Iyer, CEO, HDFC Pension, said, “NPS Vatsalya is a notable innovation. It allows parents or guardians to contribute to a child’s pension from birth, ensuring a strong foundation for future retirement savings through compounded returns.”
Budget 2024 NPS Announcements
In her 2024-25 Budget speech, Sitharaman said to improve social security benefits, the deduction of expenditure by employers towards NPS is proposed to be increased from 10 per cent to 14 per cent of the employee’s salary.
Similarly, a deduction of this expenditure of up to 14 per cent of salary from the income of employees in the private sector, public sector banks and undertakings, opting for the new tax regime, is proposed to be provided.
Explaining the provision, BDO India Partner (Global Employer Services, Tax & Regulatory Services) Preeti Sharma said an additional deduction of 4 per cent of basic salary is provided towards the employer’s contribution to NPS for employees working with the private sector and public sector banks and undertakings and have opted for the NTR.
Giving example, she said any individual with a basic salary plus dearness allowance of Rs 1,00,000 per month may now be eligible to claim an additional deduction of Rs 4,000 per month/ Rs 48,000 per annum for employer’s contribution to NPS and save annual tax of Rs 14,976.
EY India, Tax Partner and National Leader, (People Advisory Services) Sonu Iyer said the proposal to increase tax deduction will make NPS more popular.
