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Central government set to provide NPS tax benefits to UPS subscribers

The Indian government has announced an extension of significant benefits to Unified Pension Scheme (UPS) subscribers. These changes are aimed at incentivizing UPS adoption and providing parity with existing NPS tax advantages. The move ensures substantial tax relief for those choosing UPS, strengthening retirement security for millions.

UPS Tax Benefits: New Rules for Central Govt Employees
UPS Tax Benefits: New Rules for Central Govt Employees
| Updated on: Jul 04, 2025 | 07:08 PM

New Delhi: The Union Government has announced that it has made necessary changes to provide tax benefits to the employees who opted for the Unified Pension Scheme (UPS) instead of continuing with NPS (National Pension Scheme). As per the government, the introduced step is set to promote the UPS. The move is expected to encourage more employees to switch to UPS while simultaneously addressing the concerns about old-age income security. The UPS is more defined and predictable as compared to NPS.

The inclusion of UPS under the tax framework is a step forward to strengthen retirement security for the employees of the central government, said the finance ministry in its statement.

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"The government has decided that tax benefits as available under NPS would apply mutatis mutandis to UPS as it is an option under NPS," it said.

The introduced changes ensure parity with the existing NPS structure and are set to provide the substantial tax incentives to the UPS opt employees.

As notified by the Finance Ministry on January 24, 2025, it has introduced the UPS as an alternative option under NPS for central government employees w.e.f. April 1st, 2025, effectively giving them a one-time option to choose UPS under the NPS framework.

For UPS operationalization, the Pension Fund Regulatory and Development Authority (PFRDA) issued the PFRDA regulation on 19th March 2025.

UPS is available to those central government employees that are covered under NPS. They are given an option to choose UPS under the NPS framework. The option is available for existing 23 lakh government employees who chose NPS which came into effect on January 1st, 2004.

The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the UPS on 24th August, 2024. Under the old pension scheme (OPS), which was discontinued in January 2004, employees were getting 50 percent of the last drawn salary as a pension.

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