On February 1, Finance Minister Nirmala Sitharaman did not announce major tax benefits for the National Pension System (NPS).
However, she introduced an enhancement to the NPS Vatsalya Scheme. The scheme will now offer an additional tax deduction of Rs 50,000.
What does this tax deduction mean, and how will it benefit individuals? Let’s explore the details.
What did the Finance Minister say on February 1?
Finance Minister Nirmala Sitharaman announced on February 1 that the tax benefit under sub-section 1B of section 80CCD of the Income Tax Act, 1961, available for NPS contributions, will now apply to contributions made to the NPS Vatsalya scheme as well.
This means parents or guardians contributing to a child’s NPS account under the NPS Vatsalya scheme will be eligible for an additional Rs 50,000 tax deduction under sub-section 1B of section 80CCD.
Benefit only in the old regime of income tax
The tax deduction is available only under the old income tax regime. It’s important to note that this benefit applies only to taxpayers using the old tax regime.
The NPS Vatsalya Scheme was launched on September 18, 2024, and was announced by Finance Minister Nirmala Sitharaman in last year’s Union Budget.
Under this scheme, parents or guardians can begin investing in the NPS for their child.
What is NPS Vatsalya Scheme?
The NPS Vatsalya Scheme is designed for minor children. Once the child turns 18, the NPS account is transferred to their name, and all the funds in the scheme are moved to the NPS Tier-1 account.
The goal of this scheme is to build a substantial long-term fund for children.
Parents or guardians must invest a minimum of Rs 1,000 annually, with no maximum limit on the investment amount.
Taxpayers miss out under the new regime
Taxpayers believe that the government is promoting the new income tax regime.
In this light, offering increased tax benefits under the old regime for NPS Vatsalya seems contradictory.
If the government genuinely wanted to provide this benefit, it should have included the additional Rs 50,000 deduction under sub-section 1B of section 80CCD in the new regime as well.
