Budget 2024: What's NPS Vatsalya, plan by parents for children
In her Union Budget announcement on Tuesday, Finance Minister Nirmala Sitharaman mentioned the NPS Vatsalya scheme, which is a new initiative aimed at promoting long-term savings for minors. The scheme allows parents and guardians to invest on behalf of their children. The NPS Vatsalya is essentially a variant of the existing National Pension System (NPS), specifically tailored to cater to younger individuals.
Encouraging early savings for minors
Contributions toward retirement savings can be made into these accounts. Once the child reaches adulthood, the account can be converted into a regular NPS account, ensuring a seamless transition from childhood savings to adult retirement planning. "A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens," the minister further informed.
Plan can be seamlessly converted into normal NPS account
Tier I and Tier II accounts
According to CNBC-TV18, NPS provides two types of accounts. Tier I is the principal pension account with withdrawal limits, whereas Tier II is a voluntary savings account with greater liquidity. Contributions to the NPS are tax-deductible under Section 80C, with an extra deduction of up to ₹50,000 under Section 80CCD(1B). However, subscribers can choose an annuity. Upon retirement, a portion of the corpus can be used to purchase an annuity, which will provide a steady income stream.
