NPS vs UPS: Large relocation for employees of the central government! NPS tax benefits that are now available under UPS – This is what it means – Times of India

In an important step aimed at strengthening the Unified Pension Scheme (UPS), the Ministry of Finance has extensive income tax benefits that are currently available under the National Pension System (NPS) for the newly introduced UPS. A release from the government said: “In an attempt to give the UPS further tension to the UPS, the government has decided that tax benefits as available under NPs Mutatis Mutandis apply to UPS, because it is an option under NPS. These provisions provide parity with the existing NPS structure and substantial tax reduction and stimuluses for employment.”The government’s decision is expected to tackle the primary care that had filled in interest in the UPS – lack of clarity about tax treatment. UPS, which became operational on April 1, 2025, is a guaranteed pension model for employees of the central government that is active within the wider NPS framework.Tax benefits under NPS: old versus new regimesUnder the old tax regime, employees of the central government enjoy offices under three provisions:

According to the new tax regime, subtractions are limited to section 80ccd (2), whereby a government officer can claim up to 14% of the basic wage + DA as a deduction for the contribution of the employer. According to an ET report, there is no deduction for the employee’s contribution under this regime.With the expansion of the same framework for UPS, employees who choose the new schedule can expect equivalent tax savings.Important expert views about UPS tax deductionNAVEEN WADHWA, chartered accountant and vice -president at Taxmann.com, said Et, that those who choose the old tax regime will continue to make use of subtractions based on section 80CCD (1) and section 80CCD (1B). Further clarification, however, is required with regard to the maximum declining climit under section 80ccd (2). The uncertainty stems from the fact that, although section 80CCD (2) makes a maximum deduction of 14% of the basic salary plus da possible under both tax regimes, the contribution of the government to UPS is 18.5%, which exceeds the NPS contribution rate, he said.Ashish Niraj, chartered accountant and partner at ASN & Company, noted: “One of the main reasons for the low choice of UPS was the uncertainty with regard to the tax on UPS. Now that the government has clarified that tax benefits apply mutatis mutandis, people will get clarity. Earlier, NPS subscribers were eligible for tax deduction to 14% of the salary (Basic + DA) contributed by the employer on the basis of section 80CCD (2) under both tax regimes above the limit of RS 1.50 Lakh provided under section 80C and RS 50,000 under section 80ccd (1b). Now, because the government contribution is 18.5% in the case of UPS, so in my opinion UPS subscribers are 18.5% deduction under 80ccd (2) if they are government employees. “Contribution structure and insured benefits under UPSAccording to the FAQs of the government, both the employee and the central government will contribute to the individual corpus each of the basic wage plus da. Moreover, the government will contribute another 8.5% to a pooled fund, intended to support the guaranteed pension benefits for UPS subscribers.UPS guarantees a monthly pension benefit equal to 50% of the average of the basic wage of 12 months, provided that the employee has completed 25 years of qualifying service. Those with at least 10 years of service are entitled to a minimum insured payment of RS 10,000 per month, subject to regular and timely contributions.Deadline extended to chooseThe Ministry of Finance has also expanded the deadline for the employees of the central government to switch from NPS to UPS from 30 June 2025 to 30 September 2025. This extension offers employees more time to assess the viability of the new scheme in the light of the clarified tax treatment.This policy lines will probably increase the traction for the UPS, especially with the potential for full tax deduction on the 18.5% employer contribution and a function that could lift the decision in favor of those who are looking for insured benefits after retirement.