The Ministry of Finance has confirmed that all tax benefits currently available under the National Pension System (NPS) will now also apply to the Unified Pension Scheme (UPS). This move ensures fairness between the two schemes and makes UPS just as rewarding for retirement planning.
Let’s break down what this means, especially if you’re planning your future income after government service.
What Is the Unified Pension Scheme?
The Unified Pension Scheme (UPS) was launched earlier in 2025 as an alternative for central government civil service employees who join from April 1, 2025 onwards. But here’s the twist—existing NPS members can also opt into UPS.
The Pension Fund Regulatory and Development Authority (PFRDA) issued guidelines for UPS in March 2025, clearing the way for its full implementation.
What’s New: UPS Now Comes with Full NPS Tax Benefits
Until now, UPS was seen as a parallel scheme without clarity on tax advantages. That has changed.
The Finance Ministry has made it official: all tax deductions, exemptions, and incentives under the NPS will now apply to UPS as well. This includes:
- Deduction under Section 80CCD(1) – up to 10% of salary (within ₹1.5 lakh overall under Section 80CCE)
- Extra benefit of ₹50,000 under 80CCD(1B)
- Employer contribution deduction under Section 80CCD(2) – up to 10% of basic and DA
- For central government contributions, this goes up to 14% of salary
These adjustments aim to put both NPS and UPS on equal footing, offering employees the freedom to choose based on their financial goals—not based on tax limitations.
UPS Contribution Structure: What You’ll Pay, What You’ll Get
Here’s how contributions work under the Unified Pension Scheme:
| Component | Percentage of Salary (Basic + DA) |
|---|---|
| Employee Contribution | 10% |
| Government Contribution | 18.5% |
This higher government contribution (compared to NPS) offers a more stable and secure post-retirement benefit, making UPS attractive to many.
Benefits Under NPS Still Available
To better understand what these benefits mean under UPS, here’s what NPS currently provides:
- Up to 10% of salary contribution eligible for tax deduction under Section 80CCD(1)
- An additional ₹50,000 deduction under Section 80CCD(1B)
- Employer contribution up to 10% (or 14% for central government) tax deductible under Section 80CCD(2)
- Partial withdrawal of up to 25% of personal contribution is tax-free
- 60% lump sum withdrawal at retirement is tax-free under Section 10(12A)
- Annuity income is taxable, but purchase of the annuity itself is tax-free
These same benefits will now be available to UPS subscribers, offering a similar tax-efficient retirement roadmap.
Is UPS Right for You?
If you’re a central government employee who joined after January 1, 2004, you now have the option to switch to UPS—but only once in your career. That decision can’t be reversed later, so it’s important to weigh your options carefully.
Here’s who might benefit the most:
- Employees seeking a more fixed and secure pension option
- Those who are looking for higher government contribution (18.5%)
- Staff who plan to stay in government service long-term and want predictable post-retirement income
Why This Matters: A Level Playing Field for All
Until now, many employees were unsure whether UPS would match NPS in terms of financial perks. The latest announcement from the Finance Ministry answers that question clearly: yes, it will.
This decision isn’t just about tax. It’s about trust—giving employees confidence that whichever scheme they pick, they’re not losing out on incentives.
How Many Employees Can Opt for UPS?
Roughly 23 lakh central government employees are currently covered under the NPS. These employees are now eligible to switch to UPS as a one-time choice.
That’s a massive potential shift in how retirement benefits will be structured for lakhs of government workers across the country.
FAQs: UPS vs NPS
Q: Can I switch back to NPS after opting for UPS?
No. The change is a one-time option only.
Q: Is there any fee or penalty to switch?
No fee has been announced. But check official notifications and consult your department before deciding.
Q: Do I need to make a fresh account under UPS?
Yes, you’ll follow a migration process under the new scheme as per PFRDA guidelines.
Q: Is UPS better than NPS?
It depends. UPS offers higher government contribution and stable structure, but NPS has flexibility. It’s a personal choice.
Final Thought
Choosing a pension plan is a big step. And while it might seem technical or overwhelming, this recent move to bring UPS on par with NPS makes it easier to compare, plan, and act.
Stay updated via pfrda.org.in or pensionersportal.gov.in for all verified UPS & NPS notifications.