What is NPS Vatsalya? Key Features , Eligibility, Tax Benefits

The Government of India has recently launched the NPS Vatsalya scheme, aimed at securing the financial future of minor children. This new initiative is an extension of the National Pension System (NPS) and allows parents to set up a pension account specifically for minors.

What is NPS Vatsalya?

NPS Vatsalya is a pension scheme designed for minors, where parents or guardians can open a dedicated account in their child's name. Contributions made under this scheme will grow over time, helping build a pension corpus for the child, who will benefit upon reaching adulthood.

Key Features of NPS Vatsalya:

1. Eligibility:

   • All Indian citizens below the age of 18 are eligible.
   • The account is opened in the minor’s name but is managed by a parent or guardian until the child reaches adulthood.

2. How to Open:

   • Accounts can be opened through various Points of Presence (PoPs) regulated by PFRDA, including major banks, India Post, and pension funds. An online option (e-NPS) is also available.

3. Contribution:

   • The minimum annual contribution is ₹1,000, with no upper limit on how much you can invest.

4. Investment Options:

   • Multiple investment options are available to suit different risk appetites. Subscribers can choose to invest in government securities, corporate bonds, and equity, or opt for lifecycle funds that automatically adjust the asset allocation based on age.

5. Investment Choices:

   • Default Choice: Moderate Life Cycle Fund (LC-50) with 50% exposure to equity.
   • Auto Choice: Guardians can select among three lifecycle funds — Aggressive LC-75 (75% equity), Moderate LC-50 (50% equity), or Conservative LC-25 (25% equity).
   • Active Choice: Guardians can actively decide on the allocation across asset classes like equity (up to 75%), corporate debt (up to 100%), government securities (up to 100%), and alternative assets (5%).

6. Conversion at 18:

   • Upon the child reaching 18 years of age, the NPS Vatsalya account will seamlessly convert into a regular NPS account. The pension benefits will, however, only be accessible after the individual turns 60 years old.

Withdrawal and Exit Provisions:

1. Partial Withdrawal:
   • Partial withdrawals (up to 25%) are allowed after three years of account opening for specific needs like education, illness, or disability. These withdrawals can be made up to three times until the subscriber turns 18.
2. Exit upon Turning 18:
   • If the accumulated corpus is ₹2.5 lakh or more, at least 80% must be used to purchase an annuity, while the remaining can be taken as a lump sum.
   • If the corpus is below ₹2.5 lakh, the entire amount can be withdrawn as a lump sum.

Tax Benefits:

At present, there are no specific tax benefits outlined for NPS Vatsalya. It is expected that contributions to this scheme will fall under the general tax deductions available for NPS under Sections 80C and 80CCD (1B) of the Income Tax Act. However, official clarification on this matter is awaited.

How to Open an NPS Vatsalya Account:

The account can be opened through PoPs registered with the PFRDA, including major banks, India Post, and pension funds. It can also be opened online via the e-NPS platform.

Conclusion:

The NPS Vatsalya scheme is a commendable initiative by the Government of India, providing parents with a long-term financial planning tool for their children's future. It ensures that minors have a growing pension fund, which can be accessed upon reaching adulthood. As the scheme evolves, further refinement in its rules and guidelines is anticipated.