Unified Pension Scheme tax benefits: What central employees need to know
From April 2025, central government employees opting for the Unified Pension Scheme (UPS) can breathe easy — the tax benefits will now mirror those under the National Pension System (NPS). This ensures parity, flexibility, and continued savings for employees looking to switch.
Let’s decode what the UPS means for your salary, tax deductions, and retirement planning.
What is the Unified Pension Scheme (UPS)?
The UPS is a new retirement option introduced by the Central Government for its employees. It’s part of a structured reform aimed at offering more choice and uniformity in pension systems without affecting tax planning.
Effective from 1 April 2025, eligible employees can opt for UPS instead of the regular NPS.
Key features of UPS
- Available to central government employees only (initial phase)
- Can be chosen in place of existing NPS
- Offers same tax treatment as NPS
- Employer contribution structure remains unchanged
Tax benefits under UPS (same as NPS)
Here’s how UPS retains NPS-equivalent tax breaks, as per government clarification:
| Tax Benefit Section | UPS (same as NPS) |
|---|---|
| Section 80CCD(1) | Employee’s own contribution up to ₹1.5 lakh (within overall ₹1.5L under 80C) |
| Section 80CCD(1B) | Additional deduction of ₹50,000 exclusively for NPS/UPS |
| Section 80CCD(2) | Employer contribution up to 14% of salary (for Central Govt) – fully deductible |
| Tax on withdrawals | Up to 60% corpus withdrawn on retirement is tax-free (balance goes to annuity) |
✅ This means no extra paperwork or tax loss when switching to UPS from NPS.
CBDT and Government Clarification
As per official sources from the Ministry of Finance and Central Board of Direct Taxes (CBDT), all existing tax provisions for NPS under the Income-tax Act, 1961, will apply identically to UPS.
This is in line with the Finance Ministry’s push for policy simplification without penalising employee choices.
📄 Source: PIB Press Release & Budget Implementation Notes (April 2025)
Visit pensioners.gov.in for more government-backed updates.
Expert View: No double tax planning required
According to tax professionals, the real advantage lies in the seamless continuity:
“Central employees who switch to UPS won’t need to rethink their deductions under 80CCD. It’s just a structural shift in scheme, not in tax planning,” says a leading CA from Delhi.
So your Section 80C strategy remains intact — just ensure timely declarations during the switch.
Who should choose UPS over NPS?
Here’s a quick decision guide:
| Scenario | Recommendation |
|---|---|
| You prefer central government-backed scheme | Go for UPS |
| Already invested in NPS via private platforms | Stay with NPS |
| Looking for same tax benefits but different pension body | UPS is a suitable alternative |
What employees must do
- Check with your HR/payroll team about the UPS opt-in process
- Update your investment declaration form if you switch
- Retain proof of contribution for 80CCD deductions
- Track both employer and employee contribution limits
Frequently Asked Questions (FAQs)
Q1: Is UPS available for private sector employees?
No. As of now, UPS is only for central government employees.
Q2: Can I claim both 80CCD(1) and 80CCD(1B) for UPS?
Yes. The same deduction limits apply as NPS.
Q3: Will there be any change in withdrawal rules?
No. Tax-free withdrawal of 60% corpus remains valid.
Summary
The new Unified Pension Scheme (UPS), launched in April 2025, gives central government employees an NPS-like retirement option without losing tax benefits. Employees can claim deductions under Sections 80CCD(1), 80CCD(1B), and 80CCD(2) just like in NPS.
Final thoughts
The Unified Pension Scheme ensures that central employees don’t lose tax savings just because they opt for a new pension structure. With NPS-equivalent deductions, the UPS is a smooth and safe switch.
👉 Want help with 80C and 80CCD planning? Talk to Efiletax now and optimise your deductions without the stress.