New pension scheme for minors introduced in Union Budget 2024: Details and how to apply
The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman in the parliament on July 23 announced a new pension scheme for minors, called the NPS Vatsalya. This makes it possible for parents or guardians to plan a pension for their children.
“By allowing parents and guardians to initiate their minor child’s NPS account, the initiative sets the foundation for responsible financial management from an early age. As these accounts transition into regular NPS plans upon adulthood, they provide a smooth continuation of savings habits into adulthood.” an Economic Times report quoted Ranbheer Singh Dhariwal, CEO of Max Life Pension Fund Management, as saying. “Additionally, the proposed increase in employer contributions to NPS from 10 to 14 percent reinforces the role of employers in fostering long-term financial and social security for their workforce.”
What is NPS Vatsalya?
NPS Vatsalya is a scheme for minors in which, a regular contribution is made by parents or guardians. The scheme will get converted to regular NPS once the child attains the age of 18.
What is the National Pension Scheme (NPS)?
The National Pension Scheme (NPS) is a voluntary pension system for all citizens, including both residents and NRIs between the ages of 18 and 70 years.
It is a market-linked contribution scheme that allows Indian citizen to systematically save for their retirement and also derive tax benefits out of it.
What are the tax benefits currently available with the NPS?
Tax benefits for self-contributing employees:
Tax deduction up to 10% of salary (Basic + DA) under section 80 CCD(1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of ₹1.50 lakh under Sec 80 CCE.
Tax benefits for employees on employer contribution:
Tax deduction up to 10% of salary (Basic + DA) (14% if such contribution is made by Central Government) contributed by employer under Section 80 CCD(2) over the limit of Rs. 1.50 lakh provided under section 80 CCE.
The Union Budget 2024 has increased the deduction possible from the employer’s contribution to the NPS for private sector employees from 10% to 14% of the salary in the new tax regime.
Tax benefits for the self-employed
Tax deduction up to 20% of gross income under section 80 CCD (1) with in the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
How to open an NPS account?
Go to either the official eNPS website or the website of any authorised banks or financial institutions that offer NPS services.
Click on ‘Registration’ and select ‘new registration’. Applicants have to provide their Aadhaar or PAN number, mobile number, and e-mail ID. They also have to choose one among three central recordkeeping agencies to maintain the NPS account details. After OTP validation, personal details have to be filled.