Tax Benefits of NPS Extended to Unified Pension Scheme

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  • Last Updated on 6 July, 2025

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Unified Pension Scheme tax benefits

Press Release, dated 04-07-2025

The Department of Financial Services, Ministry of Finance, through its Notification No. FS-1/3/2023-PR dated 24.01.2025, has formally notified the introduction of the Unified Pension Scheme (UPS) as an optional framework under the National Pension System (NPS). The UPS became effective from April 1, 2025, and is available to new recruits to the Central Government civil services.

1. One-Time Option for Existing Central Government Employees

In addition to applying to new recruits, the Government has granted a one-time option for existing Central Government employees currently covered under NPS to opt into the Unified Pension Scheme. This move is aimed at giving flexibility to employees in choosing a pension structure that better aligns with their retirement planning goals.

2. Tax Benefits Extended to Unified Pension Scheme

To further encourage adoption of the UPS, the Government has clarified that all tax benefits currently available under NPS shall apply mutatis mutandis to the Unified Pension Scheme. This ensures:

  • Parity in tax treatment between NPS and UPS
  • Substantial tax relief for employees opting for UPS
  • Continuity and uniformity in fiscal incentives under the pension framework

3. Enhancing Retirement Planning and Financial Security

By aligning UPS with NPS in terms of tax benefits, the Government aims to:

  • Boost employee confidence in choosing the new scheme
  • Facilitate smoother transition for employees opting for UPS
  • Reinforce long-term savings discipline among civil servants

4. Key Takeaways

  • Effective Date – UPS is applicable from 01.04.2025 for new Central Government civil service recruits.
  • One-Time Switch – Existing NPS-covered employees can opt in once to UPS.
  • Tax Benefits – All NPS tax incentives apply to UPS, providing a level playing field.

This initiative marks a significant step in strengthening India’s pension reforms and ensuring greater financial security for government employees. Let me know if you’d like a one-pager or FAQ document created for employees explaining the UPS vs. NPS comparison.

Click Here To Read The Full Press Release

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied