Union Budget 2025: Pension schemes revised; NPS Vatsalya to get tax deduction benefit. All you need to know

The Union Budget 2025 brought in several noteworthy changes to pension schemes to boost the financial security of retirees and spur more people into structured retirement planning. These changes aim at tax benefits, adjustments to standard deductions, and the introduction of new pension frameworks.

Tax benefits for NPS Vatsalya scheme

Extension of tax benefits under Section 80CCD(1B) to the NPS Vatsalya scheme is a major highlight of the Budget. Now, as a child welfare investment fund, the scheme allows the contributors to claim additional deduction of up to ₹50,000 over and above the normal ₹1.5 lakh under Section 80C. This move is expected to encourage people to invest in the NPS Vatsalya scheme, which is for the benefit of children’s welfare in the long run.

Standard deduction unchanged

The Budget did not announce an increase in the standard deduction for salaried individuals and pensioners, contrary to widespread expectations. As the deduction remains at ₹50,000, taxpayers will not receive relief from rising living costs. The government chose to keep this limit, which many had been expecting, with a hike to provide more tax relief to the middle class.

Implications for senior citizens

In addition, the Budget included some benefits for senior citizens such as an increase in the tax deduction limit on interest income and more flexible rules for withdrawal from certain savings schemes. The limit of ₹50,000 for deduction of tax on interest income has been increased to ₹1 lakh, which means additional financial relief to senior citizens.

The TDS threshold for rent payments has also been raised from ₹2.40 lakh to ₹6 lakh per annum, thereby reducing compliance burden for elderly taxpayers. The idea behind these initiatives is to give retirees more financial flexibility and security in their retirement years, alleviating worries about how to secure enough income.

The revisions to pension schemes in the Union Budget 2025 can be considered an attempt to improve retirement planning and the financial well-being of retirees. The extension of the tax benefits for the NPS Vatsalya scheme is a good step; however, the decision to continue with the standard deduction at the current rate may be seen as a missed opportunity to provide some more relief to taxpayers.