The Finance Minister announced the NPS Vatsalya Scheme during the Budget 2024. It is a pension scheme opened in the name of minor children.
Parents or guardians can open an NPS Vatsalya account in the child’s name (minor), and when the child turns 18 (major), the account becomes a regular NPS account.
Previously, only majors were allowed to invest in NPS (National Pension System). Now, by opening the account for minors, more money will accumulate in this account by the time they retire.
Even Rs 1000 a year is enough to secure your children’s future through the NPS Vatsalya Scheme, managed by PFRDA and supported by the Government of India.
There is no need to be afraid to invest in this account. The Union Finance Minister also launched an online platform for NPS Vatsalya.
Once the account is opened, a ‘Permanent Retirement Account Number’ (PRAN) will be issued in the minor’s name. This account can be opened with a minimum annual investment of Rs. 1000.
75% of the money deposited in this scheme is invested in equities and 25% in government securities. Since the launch of NPS, the average return has been 12.86 percent.
NPS Vatsalya account can be opened in all banks and post offices, requiring the child’s birth certificate and parents’ KYC.
As per the rules, the NPS Vatsalya account will be converted into a regular NPS account (Tier-1) when the child turns 18, and the account rules will change accordingly. The NPS Vatsalya Account has a lock-in period of 3 years, and money cannot be withdrawn before this period.
After the lock-in period, money can be withdrawn from this account in case of emergency, up to 25% of the amount, for your child’s education, illness, disability treatment, etc. The withdrawal facility is limited to three times only.
If you want to cancel your NPS Vatsalya account, you can withdraw 20% of the account balance if it is more than 2.5 lakhs. The remaining 80% should be used to purchase annuity schemes.
If the account balance is less than 2.5 lakhs, the entire amount can be withdrawn. In case of the account holder’s death, the money is paid to the parent/guardian/nominee.
There are no clear guidelines regarding tax benefits, but experts believe that exemptions can be availed under Section 80C and 80CCD (1B) of the Income Tax Act.