The Finance Ministry on Friday announced that all tax benefits currently available under the National Pension System (NPS) will also be extended to the newly introduced Unified Pension Scheme (UPS).
The decision aims to make the Unified Pension Scheme more attractive for central government employees, providing parity between the two pension options.
Introduced earlier this year, the UPS is available to new recruits joining the central government civil services from April 1, 2025. Existing government employees covered under the NPS have also been given a one-time option to switch to the new scheme.
In March, the Pension Fund Regulatory and Development Authority (PFRDA) notified the rules and procedures to operationalise the scheme. With the Finance Ministry’s latest decision, employees choosing UPS will now be entitled to the same tax deductions on contributions and other tax-saving incentives as those opting for the NPS.
The UPS has been designed to offer a more predictable retirement income by assuring a defined pension. Under the scheme, the government contributes 18.5 per cent of an employee’s basic pay and dearness allowance, while the employee contributes 10 per cent.
By contrast, the National Pension System, which remains in place for other subscribers, operates as a defined contribution scheme without guaranteed returns.
The Finance Ministry described the tax parity as an effort to strengthen retirement security for central government staff through “transparent, flexible and tax-efficient options”.
The PFRDA will continue to oversee both pension schemes. Officials said the move is expected to encourage more employees to exercise their option to switch, and help the government address concerns about old-age income security.
