Context:

• The Pension Fund Regulatory and Development Authority (PFRDA) has issued the NPS Vatsalya Scheme Guidelines 2025 to strengthen the long-term financial security of minors.

Key Points:

• Announcement: In the Union Budget for FY 2024–25
• Launch: 18 September 2024, by the Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman

Major Features of the Scheme:

• NPS Vatsalya is a contribution-based savings and long-term financial security scheme, specifically designed for minors.
• The scheme enables parents and legal guardians to systematically save for their children from an early age, with a provision for transition into the National Pension System after attaining adulthood.
• As per the notified amendments to the PFRDA (Exit and Withdrawal under NPS) Regulations, 2015, the NPS Vatsalya Guidelines introduce flexible provisions to ensure long-term financial security for minors and continuity of savings upon attaining adulthood.

Eligibility:

• Open to all Indian citizens, including NRI/OCI, who are below 18 years of age
• The minor will be the sole beneficiary
• The account will be opened in the name of the minor and operated by the guardian

Contributions:

• Minimum initial and annual contribution: ₹250
• No maximum limit on contribution
• Contributions may also be made as gifts by relatives and friends

Pension Fund Selection:

• The guardian may choose any pension fund registered with PFRDA

Partial Withdrawal Provisions:

• Permitted after completion of three years from account opening
• Up to 25% of own contributions (excluding returns) can be withdrawn
• Allowed for education, medical treatment, and specified disabilities
• Permitted twice before the age of 18 and twice between 18–21 years, subject to conditions

On Attaining Adulthood:

• Fresh KYC is mandatory upon attaining 18 years of age
• Options available up to 21 years of age:
• Continue under NPS Vatsalya, or
• Transfer to NPS Tier I (All Citizens Model or any other applicable model), or
• Exit with the following conditions:
• Up to 80% as lump sum
• At least 20% must be mandatorily annuitized
• If the total corpus is ₹8 lakh or less, full withdrawal is permitted

National Pension System (NPS)

• A voluntary pension scheme operated by the Government of India to provide financial security after retirement.
• Regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
• Introduced in 2004 for government employees and opened to all citizens in 2009.

Types of NPS Accounts:

• Tier I (Mandatory):The primary pension account. Withdrawals before retirement (60 years) are restricted. Tax benefits are available on this account.
• Tier II (Voluntary):Functions like a savings account. Can be opened only by individuals having a Tier I account. Funds can be withdrawn anytime, but no tax benefit is available.

Eligibility:

• Any Indian citizen (resident or non-resident) aged 18 to 75 years
• NPS Vatsalya: Under the new rules for 2025–26, accounts can now be opened for minors below 18 years (minimum contribution ₹250)

Investment Options:

Subscribers can invest as per their preference in four asset classes:

• Asset E (Equity): Investment in the stock market
• Asset C (Corporate Debt): Bonds of private companies
• Asset G (Government Securities): Government bonds
• Asset A (Alternative Assets): Real estate and others (limited exposure)

Tax Benefits:

• • Section 80C: Tax exemption up to ₹1.5 lakh
• • Section 80CCD (1B): Additional tax benefit of ₹50,000 (total ₹2 lakh)
• • On maturity: At the age of 60, 60% of the lump sum withdrawal is fully tax-free

Withdrawal Rules:

• • At 60 years of age:Up to 60% of the total corpus can be withdrawn; the remaining 40% must be used to purchase an annuity, providing a monthly pension.
• • Premature withdrawal: Up to 25% of own contributions can be withdrawn under special circumstances such as illness, education, or marriage.