Union Budget 2025-26 (Full) + Finance Bill, 2025

II. Deduction under section 80CCD for contributions made to NPS Vatsalya

The NPS Vatsalya Scheme, officially launched on 18 September 2024, enables parents and guardians to start a National Pension Scheme (NPS) account for their children. This savings-cumpension scheme is designed exclusively for minors and will be operated by the guardian for the exclusive benefit of the minor till they attain majority. When a minor attains 18 years, the account will continue to be operational, transferred to the child's name with the accumulated corpus and will be shifted into the NPS-Tier 1 Account - All Citizen Model or other non-NPS scheme account.

2. It is proposed to extend the tax benefits available to the National Pension Scheme (NPS) under Section 80CCD of the Act to the contributions made to the NPS Vatsalya accounts, as follows:

(I) A deduction to be allowed to the parent/guardian’s total income, of the amount paid or deposited in the account of any minor under the NPS to a maximum of Rs 50,000/- overall as mandated under sub-section (1B) of section 80CCD;

(II) The amount on which deduction has been allowed under sub-section (1B) of section 80CCD or any amount accrued thereon, will be charged to tax when such amount is withdrawn, in the case where deposit was made in the account of a minor; and

(III) The amount on which deduction has been allowed and is received on closure of the account due to the death of the minor shall not be deemed to be the income of the parent/guardian;

3. The NPS Vatsalya Scheme also allows for partial withdrawal from the minor’s account to address certain contingency situations like education, treatment of specified illnesses and disability (of more than 75%) of the minor. Accordingly, it is also proposed to insert a clause (12BA) in section 10 of the Act, which provides that any income received on partial withdrawal made out of the minor’s account, shall not be included in the total income of the parent/guardian to the extent it does not exceed 25% of the amount of contributions made by him and in accordance with the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder.

4. These amendments will take effect from the 1st day of April, 2026, and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.

[Clauses 6 & 17]

 

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Full Text:

Union Budget 2025-26 (Full) + Finance Bill, 2025

Deduction under Section 80CCD extended to NPS Vatsalya contributions, with withdrawal taxation and partial withdrawal exemption. Parents or guardians may claim a statutory deduction for amounts paid into a minor's NPS Vatsalya account up to a prescribed ceiling. Amounts for which a deduction is allowed, including any accretions, will be taxed on withdrawal when deposits were made to a minor's account, whereas sums received on account closure due to the minor's death will not be treated as the parent's or guardian's income. Partial withdrawals for defined contingencies are excluded from the parent's or guardian's income to the extent they do not exceed a prescribed percentage of contributions and subject to regulatory conditions.