NPS Vatsalya: Eligibility, investment choices for children, partial withdrawal and exit rules, explained
National pension scheme: The NPS Vatsalya Scheme allows children below 18 years to partially withdraw funds from their accounts under certain circumstances. We take a look at the process and how it works…
The National Pension Scheme's spin-off for children, known as the NPS Vatsalya Scheme, allows parents to operate an account for their minor children till such time the sole beneficiary crosses 18 years of age. Notably, all tax benefits for NPS apply to the NPS Vatsalya accounts as well, and the minor account can easily be converted to a standard NPS account after the child attains majority.
NPS Vatsalya: What is the scheme? Who is eligible?
Launched in September 2024 under the NPS, NPS Vatsalya is exclusively available for minors. The aim is to allow parents to secure their child's financial future. It is regulated and administered by the Pension Fund Regulatory Authority of India (PFRDA) and gives interest between 9.5% to 10%.
In order to be eligible, the sole beneficiary (child below 18 years) must be an Indian citizen, Non-Resident Indian (NRI) or Overseas Citizenship of India (OCI). The parents or guardians operating the account on behalf of the minors will be nominees under the scheme.
The minimum contribution is ₹1,000 per annum with no upper limit on the maximum contribution.
Contribution of up to ₹1.5 lakh made to NPS Vatsalya are exempt for the parent / guardian under Section 80CCD(1B) of the Income Tax Act, 1961. The parents or guardian can also claim further ₹50,000 deduction.
Documents accepted are birth certificate of the minor, school leaving certificate/ matriculations issued by higher secondary board of respective states, passport of minor and PAN.
It is not mandatory for the minor to have a bank account or a joint bank account with the minor before opening the NPS Vatsalya account. But it will be required at the time of partial withdrawal or exit before the age of 18.
What are the investment choices under NPS Vatsalya?
There are three main choices on offer:
- Default Choice: This is a Moderate Lifecycle Fund — LC-50 (50% equity).
- Auto Choice: Aggressive Lifecycle Fund — LC-75 (75% equity), Moderate Lifecycle Fund - LC-50 (50% equity), or Conservative Lifecycle Fund - LC-25 (25% equity).
- Active Choice: Parents can actively decide the allocation of funds across equity (up to 75%), government securities (up to 100%), corporate debt (up to 100%), and alternate asset (up to 5%).
NPS Vatsalya: What are the rules for withdrawal and exit from scheme?
You can have partial withdrawal from the NPS Vatsalya scheme before the beneficiary turns 18 under certain conditions, as follows:
- Parents or guardians can withdraw up to 25% of the contributed amount after three years since date of joining. This option can be availed only thrice till the beneficiary turns 18.
- Parents and guardians can withdrawal for education, disability (over 75%), health treatment for specified illnesses.
- The child (sole beneficiary) can choose to exit the scheme once they turn 18 or choose to convert the account into a regular NPS account. This will require KYC within three months of turning 18 years old and will lead to full transfer of corpus into the new account.
- In case of death of the child the entire corpus will be returned to the nominee.
- In case of death of parent or guardian the other responsible party should be registered with fresh KYC.
- In case of death of both parents a legal guardian can continue the scheme without contributions till child attains majority.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.