NPS vs UPS: Big move for central government workers! NPS tax benefits now available under UPS – here’s what it means

In a major move aimed toward strengthening the Unified Pension Scheme (UPS), the Finance Ministry has prolonged earnings tax benefits at the moment available under the National Pension System (NPS) to the newly launched UPS. A government launch mentioned, “In a bid to provide further impetus to the UPS, the Government has decided that tax benefits as available under NPS shall apply mutatis mutandis to UPS as it is an option under NPS. These provisions ensure parity with the existing NPS structure and provide substantial tax relief and incentives to employees opting for the Unified Pension Scheme.”The government’s determination is predicted to deal with the first concern that had dampened curiosity within the UPS — lack of readability on tax remedy. UPS, which grew to become operational on April 1, 2025, is a assured pension mannequin for central government workers that operates throughout the broader NPS framework.Tax benefits under NPS: Old vs New regimesUnder the previous tax regime, central government workers get pleasure from deductions under three provisions:

Under the brand new tax regime, deductions are restricted to Section 80CCD(2), the place a government worker can declare as much as 14% of fundamental pay + DA as deduction for employer’s contribution. There isn’t any deduction for the worker’s contribution under this regime, based on an ET report.With the extension of the identical framework to UPS, workers selecting the brand new scheme can count on equal tax financial savings.Key knowledgeable views on UPS tax deductionsNaveen Wadhwa, Chartered Accountant and Vice President at Taxmann.com, instructed ET, that these selecting the previous tax regime will proceed to avail deductions under Section 80CCD(1) and Section 80CCD(1B). However, additional clarification is required relating to the utmost deduction restrict under Section 80CCD(2). The uncertainty stems from the truth that while Section 80CCD(2) permits a most deduction of 14% of fundamental wage plus DA under each tax regimes, the government’s contribution in direction of UPS stands at 18.5%, which exceeds the NPS contribution fee, he mentioned.Ashish Niraj, Chartered Accountant and Partner at A S N & Company, famous: “One of the main reasons for the low choice of UPS was the uncertainty regarding the taxation of UPS. Now that the government has clarified that tax benefits will apply mutatis mutandis, people will get clarity. Earlier, NPS subscribers were eligible for tax deduction up to 14% of salary (Basic + DA) contributed by the employer under Section 80CCD(2) under both the tax regimes over the limit of Rs 1.50 lakh provided under Section 80C and Rs 50,000 under Section 80CCD(1B). Now, as the government contribution is 18.5% in the case of UPS, so in my view, UPS subscribers will get 18.5% deduction under 80CCD(2) if they are government employees.”Contribution construction and guaranteed benefits under UPSAs per the government’s FAQs, each the worker and the Central Government will contribute 10% every of fundamental pay plus DA to the person corpus. Additionally, the government will contribute one other 8.5% to a pooled fund, meant to help the assured pension benefits for UPS subscribers.UPS ensures a month-to-month pension payout equal to 50% of the common of the final 12 months’ fundamental pay, offered the worker has accomplished 25 years of qualifying service. Those with at the very least 10 years of service are entitled to a minimal assured payout of Rs 10,000 per 30 days, topic to common and well timed contributions.Deadline prolonged for opting inThe Finance Ministry has additionally prolonged the deadline for central government workers to change from NPS to UPS from June 30, 2025, to September 30, 2025. This extension gives workers extra time to evaluate the viability of the brand new scheme in gentle of the clarified tax remedy.This coverage alignment is prone to enhance traction for the UPS, particularly with the potential for full tax deduction on the 18.5% employer contribution — a function that would tilt the choice in favour of these searching for assured submit-retirement benefits.