Government extends NPS tax benefits to new unified pension scheme

The announcement is a significant move that will make UPS more attractive for central government employees.

The Unified Pension Scheme was introduced earlier this year as an option under NPS for recruits joining the central government civil services from April 1, 2025.

Existing government employees who are already under 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.

Now, with the latest decision, the government has ensured that employees opting for UPS will get the same tax relief and incentives as those available under NPS.

This includes deductions on contributions and other tax-saving benefits, making the scheme more financially appealing.

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.

The Unified Pension Scheme (UPS) is a pension scheme for central government employees in India, introduced as an option alongside the National Pension System (NPS).

The objective of the scheme is to provide a more predictable and secure retirement income for government employees.

The scheme offers an assured pension, with the government contributing 18.5 per cent of the employee's basic salary and dearness allowance and the employee contributing 10 per cent.

The scheme is designed to replace the NPS for new recruits and allow existing NPS members to opt in.

On the other hand, the National Pension System is a retirement benefit Scheme introduced by the Government of India to facilitate a regular income post-retirement for all the subscribers.

PFRDA (Pension Fund Regulatory and Development Authority) is the governing body for NPS. (ANI)