The Union Budget 2025 brought significant relief for old tax regime taxpayers, as Finance Minister Nirmala Sitharaman announced an extra tax exemption of ₹50,000 under Section 80CCD (1B) of the Income Tax Act, 1961. This benefit applies to those investing in the NPS Vatsalya Scheme, a government initiative designed to secure the financial future of children.

Key Announcements in Budget 2025

1. Higher Tax Exemption in the New Tax Regime

• Annual income up to ₹12 lakh is now completely tax-free under the New Tax Regime.
• The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh.
• A new tax slab structure has been introduced to reduce tax liabilities.

2. Additional ₹50,000 Tax Deduction in the Old Tax Regime

• Taxpayers following the Old Tax Regime can claim an extra deduction of ₹50,000 under Section 80CCD (1B).
• This deduction applies only to investments in the NPS Vatsalya Scheme.
• The benefit is not available under the New Tax Regime.

What is the NPS Vatsalya Scheme?

The NPS Vatsalya Scheme was launched on September 18, 2024, to help parents invest in their child’s future. The scheme allows investments starting from ₹1,000, and the funds remain locked until the child turns 18, after which it automatically converts into an NPS account.

Key Features of the Scheme

✅ Three Partial Withdrawals Allowed: Investors can withdraw up to 25% of the contribution after three years for purposes like education, medical emergencies, or disability.
✅ Annuity & Lump Sum Withdrawals:

• If the accumulated amount is above ₹2.5 lakh, 80% must be used for an annuity (monthly pension), while 20% can be withdrawn as a lump sum.
• If the total investment is ₹2.5 lakh or less, it can be withdrawn completely in one go.

Total Tax Benefits Under NPS

According to tax expert Shefali Mundra from ClearTax, the tax benefits available under NPS investment are as follows:

💰 ₹1.5 lakh deduction under Section 80C
💰 ₹50,000 additional deduction under Section 80CCD (1B)
💰 New ₹50,000 deduction under Section 80CCD (1B) for NPS Vatsalya Scheme investors

With this new provision, old tax regime taxpayers can now save up to ₹2.5 lakh in total tax deductions by investing in NPS schemes.

For more updates on tax-saving opportunities, stay informed!