Union Budget 2025: Here is the List of all Pension Schemes Revised; NPS Vatsalya to get Tax Deduction Benefit

The Union Budget 2025 has brought several important changes to pension schemes that are expected to affect many citizens across the country. These changes aim to improve financial security for retirees, encourage people to plan for their retirement, and introduce new tax benefits.

In this article, we will explore the key revisions made to pension schemes, including the introduction of tax benefits for the NPS Vatsalya scheme, implications for senior citizens, and other important updates. We will also discuss what these changes typically mean for salaried individuals and pensioners.

Pension Schemes and Tax Benefits: A Quick Overview

Key Changes in Pension Schemes

The Union Budget 2025 brought major updates to pension plans, largely focusing on providing better financial security for retirees and promoting structured retirement planning. The government made changes in three key areas: tax advantages, standard deductions, and new pension structures.

1. Enhanced Tax Relief for NPS Vatsalya Scheme

• What it is: The NPS Vatsalya Scheme is a specific investment fund within the National Pension System designed for child welfare, allowing parents to contribute for their minor children's long-term financial future.
• The change: The Budget extended and clarified additional tax reliefs for contributions to this scheme. Contributors can now claim an extra deduction of up to ₹50,000 under Section 80CCD(1B), which is over and above the existing ₹1.5 lakh limit under Section 80C. This applies to both the Old and New Tax Regimes, making it a highly attractive option for saving for a child's future while also reducing taxable income.

2. Proposed Hike in EPS-95 Minimum Pension

• What it is: The Employees' Pension Scheme (EPS-95) provides a monthly pension to employees in the organized sector who are subscribers to EPFO.
• The change: While awaiting final approval, there was a significant proposal to increase the minimum monthly pension under EPS-95 from the current ₹1,000 to ₹7,500. This proposed hike is expected to benefit millions of EPFO pensioners and is anticipated to be implemented around May 2025. This move aims to provide much-needed financial security to a large segment of retirees, particularly given rising living costs. There are also discussions around introducing a Dearness Allowance (DA) component linked to inflation for EPS pensions.

3. Tax Exemption for National Savings Scheme (NSS) Withdrawals

• What it is: Various small savings instruments offered by the government (e.g., NSCs, KVP) that encourage savings.
• The change: Withdrawals from NSS accounts were made fully tax-exempt, effective from August 29, 2024. This change particularly benefits senior citizens and small savers who utilize these schemes for their financial planning, enhancing the liquidity and attractiveness of these instruments.

4. Increased Deduction Limit for Senior Citizens Interest Income

• What it is: Senior citizens often rely on interest income from savings accounts, fixed deposits, and other investments.
• The change: The Budget increased the tax deduction limit on interest income for senior citizens from ₹50,000 to ₹1 lakh under Section 80TTB. This provides substantial tax relief, allowing seniors to save more on their interest earnings, regardless of whether they opt for the Old or New Tax Regime.

5. Revised Standard Deduction for Pensioners (and Salaried Individuals)

• What it is: A fixed deduction from taxable salary or pension income.
• The change: While the standard deduction under the Old Tax Regime remained at ₹50,000, for those opting for the New Tax Regime, it was confirmed and clarified as ₹75,000 for salaried employees and pensioners. This change was a carryover from a previous budget but its application in FY 2025-26 solidifies a larger tax-free income slab, especially for those with moderate incomes choosing the simplified regime. For family pensioners, the standard deduction under the new tax regime was increased to ₹25,000 from ₹15,000.

6. Increased TDS Threshold for Rent Payments

• What it is: Tax Deducted at Source on rental income.
• The change: The annual TDS threshold for rent payments was significantly increased from ₹2.40 lakh to ₹6 lakh. This change is aimed at reducing the compliance burden for small landlords, especially those who rely on rental income for their livelihood, including many senior citizens.

What These Changes Mean for Taxpayers

The updates to pension plan in the 2025 Union Budget generally aim to improve retirement planning and give retirees more financial security. However, the impact on individuals depends on their financial situation.

1. Encouraging Child Welfare Investments through NPS Vatsalya

The Budget 2025 introduced a powerful incentive for parents looking to secure their children's financial future.

• Additional Tax Deduction for NPS Vatsalya: Contributions to the NPS Vatsalya Scheme, which focuses on child welfare, will now be eligible for an additional deduction of up to ₹50,000 under Section 80CCD(1B). This is over and above the existing ₹1.5 lakh limit under Section 80C.
• What this means for you: This offers a unique dual tax benefit for parents. You can effectively save more for your child's long-term financial security (including their retirement corpus) while simultaneously reducing your current taxable income, making it a highly tax-efficient savings avenue.

2. Potential for Higher Pensions under EPS-95

While awaiting final formal approval, the Budget 2025 indicated a strong move towards enhancing the minimum pension under the Employees' Pension Scheme (EPS-95).

• Proposed Minimum Pension Hike: There is a significant proposal to increase the minimum monthly pension under EPS-95 from ₹1,000 to ₹7,500. This, if implemented as expected (likely by May 2025), will dramatically improve the financial stability of millions of organized sector pensioners. The inclusion of Dearness Allowance (DA) linked to inflation is also being discussed.
• What this means for you: If you are an EPS-95 pensioner or will be one, this proposed hike could significantly boost your monthly income, offering better financial security in the face of rising living costs.

3. Relief for the Middle Class and Salaried Individuals

A significant thrust of the Budget 2025 was to enhance disposable income for low and middle-income groups, particularly those embracing the New Tax Regime.

• Higher Tax-Free Income under New Tax Regime: For salaried individuals, the effective tax-free income limit has now extended to ₹12.75 lakh per annum under the New Tax Regime. This is a combination of a higher rebate limit (income up to ₹12 lakh now effectively tax-free) and the enhanced standard deduction.
• Increased Standard Deduction (New Tax Regime): The standard deduction for salaried individuals and pensioners under the New Tax Regime has been reaffirmed at ₹75,000. This is a direct benefit, allowing a larger portion of income to be tax-exempt without needing to opt for specific investments. While the Old Tax Regime's standard deduction remains ₹50,000, the increased limit in the new regime makes it a more compelling choice for many who prefer simplicity over claiming numerous deductions.
• For Family Pensioners: Those receiving family pensions under the New Tax Regime will also benefit from an increased standard deduction of ₹25,000 (up from ₹15,000).
• What this means for you: If you are a salaried individual or a pensioner, especially if you haven't traditionally maximized deductions under the Old Tax Regime, the New Tax Regime has become even more attractive. You could potentially see a lower tax outflow and a simpler tax filing process.

4. Significant Boost for Senior Citizens

Senior citizens are among the biggest beneficiaries of the Budget 2025, with several measures aimed at improving their financial security and ease of life.

• Doubled Deduction for Interest Income: The deduction limit on interest income for senior citizens under Section 80TTB has been increased from ₹50,000 to a substantial ₹1 lakh. This is a major relief, allowing them to earn more interest from their deposits and savings without it being subject to income tax.
• Higher TDS Threshold on Rent Payments: The annual TDS threshold for rent payments has been raised significantly from ₹2.40 lakh to ₹6 lakh. This reduces the compliance burden for many senior citizens who rely on rental income from their properties, as fewer will now need to deal with TDS implications.
• Tax Exemption for NSS Withdrawals: Withdrawals from National Savings Scheme (NSS) accounts are now fully tax-exempt (effective August 29, 2024). This provides greater liquidity and a tax-efficient avenue for seniors who have invested in these government-backed small savings schemes.
• What this means for you: If you are a senior citizen, these changes directly translate into higher net income from your investments and rental properties, along with simplified tax compliance, contributing to greater financial comfort in your retirement years.

Conclusion

The Union Budget 2025 introduced important updates to pension plans, largely to improve retirees' financial security and promote structured retirement planning. Extending tax advantages for the NPS Vatsalya scheme and increasing deductions for seniors are positive steps. However, keeping the standard deduction unchanged disappoints many salaried people and pensioners hoping for relief from rising living costs. Overall, the budget aims to balance fiscal duty with providing different sections of society with financial security. Taxpayers should carefully review the changes to grasp their impact on retirement strategies.

By staying informed, individuals can take advantage of new opportunities and ensure long-term financial well-being. Though mixed, these revisions compel taxpayers to make thoughtful financial choices.

Frequently Asked Questions

1. Which pension scheme got additional tax benefits in the Budget 2025?

The NPS Vatsalya scheme, which is an investment fund focused on child welfare, received an additional tax deduction of up to ₹50,000 under Section 80CCD(1B) of the Income Tax Act in the Union Budget 2025. This is over and above the ₹1.5 lakh deduction limit under Section 80C.

2. Has the standard deduction limit been increased in the recent budget?

Yes, the standard deduction limit has been increased from ₹50,000 to ₹75,000 for the New Tax Regime under Union Budget 2025.

3. How has the tax deduction limit changed for senior citizens' interest income?

The tax deduction limit on interest income earned by senior citizens, which was earlier capped at ₹50,000, has now been raised to ₹1 lakh in the recent budget. This provides major financial relief to seniors and encourages increased tax savings on interest income.

4. What is the new TDS threshold set for rent payments?

The Union Budget 2025 has increased the TDS (Tax Deducted at Source) threshold on rent payments from ₹2.40 lakh per year to ₹6 lakh per year. This reduces compliance burdens and paperwork for elderly taxpayers earning rental incomes.

5. Who will benefit from the additional ₹50,000 deduction under NPS Vatsalya?

The additional ₹50,000 deduction on investments made under the NPS Vatsalya pension scheme will benefit contributors who invest in this child welfare-focused scheme. Typically, parents contribute to secure the future of their children.

Written by Bruhadeeswaran R.

Bruhadeeswaran R. is a B2B content expert with 14+ years of experience, specializing in National Pension System (NPS), PAN, DPI, eSignPro, and Central KYC. As Editor and Lead Content Writer at Protean eGov Technologies, he simplifies complex e-governance topics through engaging blogs, reports, and digital content.