[Opinion] NPS Vatsalya – A Shift Toward Early Financial Planning

Bahroze Kamdin & Alifya Hakim – [2025] 171 taxmann.com 374 (Article)

On 18 September 2024, Finance Minister Nirmala Sitharaman launched the National Pension System Vatsalya (NPS Vatsalya) scheme, a historic move aimed at fostering early financial planning for children and minors. The scheme, which was first announced on 23 July 2024 in the Union Budget 2024-25, allows minors under the age of 18 to open a pension account for the first time. Prior to this, the National Pension System (NPS) was available only to individuals above the age of 18.As on 24th November 2024, a total of 67,974 accounts have been opened under this scheme.

The NPS Vatsalya scheme empowers parents or legal guardians to open and manage a pension account on behalf of their children, with the minor being the beneficiary. Its goal is to foster a pensioned society and promote children’s empowerment by instilling the habit of saving for retirement from a young age.

The scheme offers substantial flexibility to parents and guardians in contributing to their child’s pension fund. With a minimum contribution of INR 1,000 per annum and no upper limit on contributions, the scheme encourages regular savings and allows for contributions based on the guardian’s financial capacity. Additionally, the guardians can choose from a variety of pension funds, and decide on a mix of asset classes, including government securities, corporate debt, and equity, depending on their risk appetite.

One of the key features of NPS Vatsalya is the flexibility in withdrawals. After a lock-in period of three years, partial withdrawals are allowed up to 25% of the total contribution. These withdrawals can be made to meet specific needs such as the child’s higher education, medical treatment for specified illnesses, or in case of disability of more than 75%. Importantly, these withdrawals can be made a maximum of three times during the tenure of the account.

In the unfortunate event of the death of a minor, the entire corpus of the pension account is to be returned to the guardian, ensuring that the funds are protected.

If the registered guardian passes away, a new guardian must be appointed for the minor by submitting the required KYC documents. If both parents die, the appointed guardian can continue the account, with or without contributions, and the subscriber can exit the scheme upon turning 18.

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