Government Makes Major Enhancements to NPS Vatsalya Scheme to Safeguard Children’s Futures

The Pension Fund Regulatory and Development Authority (PFRDA), in collaboration with the Ministry of Finance, launched the NPS Vatsalya Scheme in September 2024 as part of the National Pension System (NPS) framework. This initiative was designed to provide financial security for minors in India. During the Union Budget 2025, the Honourable Finance Minister, Ms. Nirmala Sitharaman, announced important upgrades to the scheme to make it more effective in ensuring children’s financial stability.

Key Features and Benefits

1. Tax Benefits: Contributions made to the NPS Vatsalya account qualify for tax deductions of up to ₹50,000 under Section 80CCD (1B) annually, on par with regular NPS accounts. This deduction lowers taxable income and encourages parents or guardians to save for their children.

1. Low Minimum Contribution: To activate these pension accounts, a minimum yearly contribution of just ₹1,000 is required. There are no maximum limits, enabling subscribers of varied income levels to contribute.

1. Flexible Investment Options:

a. Auto Choice: Automatically allocates investments based on the beneficiary’s age.

b. Active Choice: Parents/guardians can manually decide the asset allocation, depending on their risk tolerance.

1. Digital Convenience:: Convenient NPS login allows account opening, contributions, and monitoring to be done seamlessly via the Protean eNPS platform through both web and mobile apps.

1. Regulated by PFRDA: As a product under the National Pension System architecture, NPS Vatsalya adheres to PFRDA regulations focused on transparency, efficiency and safeguarding investor interests.

NPS Vatsalya Eligibility

The NPS Vatsalya pension scheme is available to Indian citizens under 18. Non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) under 18 are also eligible. Since the beneficiaries are minors, their parents or legal guardians can open and operate the NPS Vatsalya account on the child's behalf until they turn 18.

• Parents or guardians are designated as nominees during the minor's childhood, but after the beneficiary turns 18, they take full control over the account and accumulated funds.
• Goal of the scheme: To promote a habit of early financial planning, empowering children through retirement savings they can manage sustainably in adulthood

How to Open/Apply NPS Vatsalya Scheme?

Here are the steps to open/apply for the NPS Vatsalya Scheme:

Step 1: Visit the Protean eNPS portal or nearest Point of Presence (POP)

Step 2: Under 'NPS Vatsalya', click on 'Register Now' if applying online or collect the application form from the POP

Step 3: Enter the guardian's date of birth, PAN, mobile number and email to generate OTP for verification (online)

Step 4: Validate the OTP received and note down the acknowledgement number

Step 5: Fill in the personal details of the minor and guardian

Step 6: Upload documents like birth certificate, address proof, guardian's identity proof

Step 7: Make the initial contribution of ₹1000

Step 8: Complete authentication via OTP or eSign

Step 9: The unique 12-digit PRAN will be allotted once the account is opened

Step 10: Log in to the Protean eNPS using this PRAN to manage the NPS Vatsalya account

The online mode is simpler and faster. Parents/guardians can also opt for the offline route through POPs if they prefer.

Withdrawal and Exit Rules of NPS Vatsalya

Here are the detailed withdrawal and exit rules under the NPS Vatsalya pension scheme:

1. Partial Withdrawals

1. Partial withdrawals are allowed after 3 years from the date of account opening
2. Up to 25% of the NPS contributions made by the parents/guardians can be withdrawn
3. This withdrawal facility can be utilized only 3 times, before the beneficiary turns 18 years old

The reasons allowed for partial withdrawals are:

1. Higher education needs of the beneficiary
2. If the beneficiary has a disability of 75% or more
3. Treatment of specified critical and terminal illnesses
4. Other reasons as notified by the regulator PFRDA

2. Exit at age of majority

1. Once the beneficiary turns 18 years old, there are two options:

a) Convert the NPS Vatsalya to a normal NPS account after completing the KYC process

b) Fully withdraw the accumulated pension corpus

1. If choosing to convert to NPS, the entire corpus gets transferred to the beneficiary's NPS tier-I account
2. Fresh KYC must be done by the beneficiary within 3 months of attaining age 18

3. Full withdrawal conditions

1. A minimum 80% of the corpus must be used to purchase an annuity plan
2. The remaining 20% (or full corpus if it is less than ₹2.5 lakhs) can be withdrawn as a taxable lump sum

4. Death of the beneficiary (minor child)

1. In case of the untimely event of the minor child's death, the entire accumulated pension corpus is returned to the nominated parent/guardian.

5. Death of parent/guardian

1. If the nominated parent/guardian dies, a new guardian can be registered through fresh KYC submission

6. Death of both parents

If both parents pass away, the legal guardian appointed by the court can continue the NPS Vatsalya account without making new contributions, until the beneficiary turns 18.

Why NPS Vatsalya Matters

According to a PFRDA spokesperson, "NPS Vatsalya is a revolutionary initiative designed to make financial security accessible to families from all income levels. It fosters early financial discipline while ensuring children are cared for in the long run."