FM Nirmala Sitharaman Announces Rs 50,000 Deduction Under NPS Vatsalya Scheme For Old Regime, NSS Withdrawals Now Exempted For Senior Citizens

Finance Minister Nirmala Sitharaman on February 1, in her budget speech announced that the subscribers of NPS Vatsalya Scheme will now be able to avail a deduction of Rs 50,000 under the old tax regime. However, the government did not make any new announcements for the tax slabs under the old regime.

Additionally, the FM announced that withdrawal from old National Savings Scheme (NSS) accounts will be tax exempted.

Sitharaman said that very old NSS accounts were not bringing interest anymore, and a subscriber would now be able to withdraw their saving without tax. The exemption would be applicable over withdrawals done on or after August 19, 2024.

The NPS Vatsalya Scheme was introduced on September 18, 2024. This scheme was aimed at enabling the parents as well as guardians to start a National Pension Scheme (NPS) account for their children or minors.

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NPS Vatsalya Scheme is savings-cum-pension scheme aimed to benefit minors, but it will be operated by their guardians. The minors will be able to get benefits till they attain the age of turning major.

“It is proposed to extend the tax benefits available to the National Pension Scheme (NPS) under sub-section (1B) of section 80CCD of the Income-tax Act, 1961 to the contributions made to the NPS Vatsalya accounts, as applicable,” Union finance minister Nirmala Sitharaman said in her Budget speech.

This new announcement puts NPS Vatsalya subscribers in the same line as subscribers of NPS in terms of tax benefits under Section 80CCD (1B).

Once the minor under whose name the NPS Vatsalya account is becomes an adult, the accumulated corpus will be shifted into their NPS-Tier 1 Account.

The objective of the scheme is to create a corpus for their children over the long term. Parents or guardians can contribute a minimum of Rs 1,000 annually, without any maximum investment limit.

Sreekanth Nadella, CEO & MD, KFin Technologies Limited says, "We welcome the Union Budget 2025 for prioritizing tax simplification and retirement savings, which will encourage more individuals to prioritize retirement planning. The transformative personal tax reforms will boost disposable incomes, coupled with growing awareness of retirement needs, presenting a unique opportunity for the pension sector. We anticipate a fundamental shift in financial planning behaviours, where pensions move from being an afterthought to becoming a core element of household financial security.”

He adds, “Exempting withdrawals from old National Savings Scheme (NSS) accounts and extending tax benefits under Section 80CCD to NPS Vatsalya accounts further enhance financial security for retirees and future generations.”

"The tax exemption limit raised to ₹12 lakh ensures higher disposable income, directly benefiting household consumption, savings, and financial planning. The new tax structure will significantly reduce tax burdens, empowering individuals to invest in their future. Additionally, higher TDS for non-PAN holders ensures fairness in taxation, safeguarding compliant taxpayers. The NPS Vatsalaya tax benefits further encourage structured retirement planning, securing financial stability for individuals," says, Krishan Mishra, CEO, FPSB India.