The Finance Ministry has announced that the Unified Pension Scheme (UPS) will now receive all tax benefits available under the National Pension System (NPS).
The significant decision aims to make UPS a more attractive option for central government employees, reported ANI.
What is Unified Pension Scheme?
The UPS was introduced earlier this year as an option under NPS for new central government civil services recruits starting April 1, 2025.
The scheme is designed to provide a more predictable and secure retirement income for government employees, offering assured pension.
This pension scheme for central government employees in India was introduced as an option alongside the National Pension System (NPS).
Under the UPS, the government contributes 18.5 per cent of the employee’s basic salary and dearness allowance, while the employee contributes 10 per cent.
Parity with NPS tax benefits
Previously, the NPS offered various tax deductions and other tax-saving incentives. With this latest announcement, employees who choose the UPS will now enjoy the same tax relief and benefits.
The decision brings parity between the two schemes and provides a level playing field for employees choosing UPS over the traditional NPS.
“The inclusion of UPS under the tax framework marks another step forward in the government’s effort to strengthen retirement security for central government employees through transparent, flexible and tax-efficient options,” the Finance Ministry stated in a statement.
Who can opt for UPS?
While the UPS is the default option for new recruits from April 1, 2025, existing government employees who are already under the NPS have also been given a one-time option to switch to UPS.
To make this new pension plan smoother to implement, the Pension Fund Regulatory and Development Authority (PFRDA) issued the necessary rules and regulations in March 2025, the news agency reported.
Understanding National Pension Scheme
The NPS is a retirement benefit scheme introduced by the Government of India to provide a regular income post-retirement for all subscribers. The Pension Fund Regulatory and Development Authority is the governing body for NPS.