UPS will now also get tax benefits like NPS, a big decision of the central government
Tax Benefit: The Finance Ministry has announced to give tax benefits like the National Pension System (NPS) on the Unified Pension Scheme (UPS). Now, central government employees will be able to avail of tax exemption even on choosing UPS, which has made pension security more attractive.
Tax Benefit: The Finance Ministry on Friday announced that all the tax benefits available under the National Pension System (NPS) will now also apply to the Unified Pension Scheme (UPS). This decision has been taken to make UPS more attractive for central government employees and to establish parity between the two schemes.
UPS will be applicable to newly recruited employees
The Unified Pension Scheme (UPS) was started this year and it will be applicable to new employees appointed in the civil services of the Central Government from April 1, 2025.
Apart from this, the employees currently covered under NPS have also been given the option to shift to UPS once.
Assured pension benefits will be available in UPS
UPS has been designed as a 'Defined Benefit Scheme', which will have a provision for fixed pension after retirement.
Under this scheme, the employee contributes 10%, the government contributes 18.5% (on basic salary + dearness allowance) while NPS is a defined contribution scheme in which the pension amount depends on market performance and is not guaranteed.
Tax exemption now same on both schemes
The Finance Ministry said that parity in tax benefits will give transparent, flexible and tax-efficient options to the employees. Now employees contributing to UPS will also get tax exemption under sections 80CCD(1), 80CCD(2) and 80CCD(1B), tax benefits on investment in annuity and tax exemption on the amount withdrawn at the time of retirement under certain conditions.
PFRDA will maintain monitoring of both schemes
The Pension Fund Regulatory and Development Authority (PFRDA) will monitor both the schemes NPS and UPS. In March 2025, PFRDA had notified the rules and procedures for implementing UPS. Now with the addition of tax benefits, it is expected that more employees will be attracted to UPS.
This decision of the government is a big step towards making pension options more stable and secure for central employees. While NPS is a market-linked scheme, UPS assures guaranteed pension to employees. And now the tax benefits in both are the same.
NPS vs UPS: What is the main difference?
| Feature | National Pension System (NPS) | Unified Pension Scheme (UPS) |
|---|---|---|
| Type of Scheme | Defined Contribution | Defined Benefit |
| Pension Guarantee | No (Market-based returns) | Yes, guaranteed fixed pension |
| Government Contribution | 14% (Basic + DA) | 18.5% (Basic + DA) |
| Employee Contribution | 10% | 10% |
| Tax Benefits | Yes (80CCD(1), 80CCD(1B), 80CCD(2)) | Now yes, same tax exemptions as NPS |
| Regulatory Body | PFRDA | PFRDA |
| Benefit Method | Market-linked returns (investment in other funds) | Provision of fixed monthly pension |
| Risk | High (Depends on market) | Low (Government guarantee) |
| Availability | For all citizens | Only for new central government employees (from April 1, 2025) |
| Option to Switch | One-time option to shift to UPS | N/A |
Disclaimer: India Employment News does not give any suggestion for any purchase or sale related to the stock market. We publish market-related analysis quoting market experts and brokerage companies. But take market-related decisions only after consulting certified experts.
