About NPS Vatsalya Scheme

Context:

The finance minister recently made the announcement of a new pension scheme under the National Pension Scheme (NPS), called NPS Vatsalya.

Relevance:

GS II: Government policies and Interventions

Dimensions of the Article:

1. NPS Vatsalya Scheme
2. National Pension Scheme (NPS)

NPS Vatsalya Scheme

Overview:

• Purpose: Designed to help parents and guardians plan financially for their children’s future.
• Mechanism:
  • Account Opening: Parents or guardians can open an NPS account for their minor children.
  • Contributions: Contributions can be made towards the child’s retirement savings.
  • Accumulation Period: Funds accumulate until the child turns 18.
  • Transfer to Adult Account: Upon reaching adulthood, the accumulated amount is transferred to a standard NPS account. The plan can also be converted into a non-NPS plan if desired.

Key Features:

• Similarity to NPS: Operates in a similar manner to the existing National Pension Scheme (NPS), adhering to the same principles of investment and fund management.

National Pension Scheme (NPS)

Overview:

• Objective: A voluntary retirement benefit scheme introduced by the Government of India to ensure a regular income post-retirement.
• Eligibility: Available to Indian citizens, including residents, non-residents, and Overseas Citizens of India.
• Function: Facilitates the accumulation of retirement savings through regular contributions during one’s career.

Investment and Returns:

• Investment Options: Contributions are invested in market-linked instruments such as stocks and bonds, which offer the potential for higher returns compared to traditional fixed-income options.
• Flexibility: Subscribers can exit the plan before retirement or choose superannuation.

Account and Tax Benefits:

• Permanent Retirement Account Number (PRAN): Unique to each subscriber and remains the same despite changes in employment, city, or state.
• Regulation: Governed by the Pension Fund Regulatory and Development Authority (PFRDA).
• Tax Deductions:
  • Section 80C: Contributions to NPS are eligible for tax deductions.
  • Section 80CCD(1B): Additional tax deduction of up to ₹50,000 is available.

-Source: Indian Express