In a major policy step aimed at strengthening retirement security for government employees, the Finance Ministry has announced that all tax benefits currently available under the National Pension System (NPS) will also apply to the newly launched Unified Pension Scheme (UPS).
The Unified Pension Scheme, introduced earlier this year, is set to become an alternative pension option for central government recruits joining after April 1, 2025. Existing NPS subscribers in government service have also been given a one-time opportunity to switch to UPS.
To facilitate a smooth rollout, the Pension Fund Regulatory and Development Authority (PFRDA) had already issued operational guidelines for UPS in March 2025. With the latest move, the government aims to create a level playing field between NPS and UPS by offering equivalent tax deductions and incentives, such as those under Sections 80C and 80CCD of the Income Tax Act.
In a statement, the Finance Ministry said: “The inclusion of UPS under the tax framework marks another step forward in the Government’s effort to strengthen retirement security for Central Government employees through transparent, flexible, and tax-efficient options.”
The UPS features an assured pension, with the government contributing 18.5% of an employee’s basic salary and dearness allowance, while the employee contributes 10%. This differs from NPS, which is market-linked and does not offer a guaranteed pension.
By extending tax parity, the government seeks to make the UPS more financially appealing, particularly to those seeking greater predictability in post-retirement income.
The move underscores the government’s ongoing efforts to reform public sector retirement planning, offering both stability through UPS and flexibility through NPS, under a common regulatory and tax structure.
