Finance Ministry Extends National Pension System Tax Benefits to Unified Pension Scheme for Central Government Employees

The Department of Financial Services, Ministry of Finance, has officially notified the introduction of the Unified Pension Scheme (UPS) as an option under the National Pension System (NPS) for recruits to the Central Government civil service.

According to a press release issued by the Press Information Bureau on July 4, 2025, the Department of Financial Services had already provided for this move through Notification No. FS-1/3/2023-PR dated January 24, 2025.

The notification also extends a one-time option to all existing Central Government employees who are already covered under the NPS, enabling them to opt into the Unified Pension Scheme if they so choose, thus providing benefits to future recruits as well as current employees in their retirement and pension planning strategy.

Benefits under the NPS

The National Pension System (NPS) offers a wide range of tax benefits designed to encourage long-term retirement savings among Central Government employees. Contributions made by employees to their NPS accounts are eligible for deductions under the Income Tax Act, thus reducing their taxable income.

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Employees can claim a deduction for their own contributions under Section 80CCD(1), which is included within the overall Section 80C limit of ₹1.5 lakh. Additionally, an exclusive deduction of up to ₹50,000 is available under Section 80CCD(1B), over and above the Section 80C ceiling, providing further tax-saving opportunities.

Employer contributions are also eligible for deduction under Section 80CCD(2), up to 10 percent of the employee’s salary (basic plus dearness allowance), with no upper monetary limit.

Implementation

Employees recruited to the Central Government civil service shall be able to choose and avail the benefits of the UPS as an option to those with effect from April 1, 2025.

To facilitate implementation, the Pension Fund Regulatory and Development Authority (PFRDA) has issued the “PFRDA (Operationalisation of the Unified Pension Scheme under NPS) Regulations, 2025,” which came into force on March 19, 2025.

One of the most significant aspects of the notification is the assurance regarding tax benefits. The government has clarified that all tax benefits that are currently available under the NPS will apply mutatis mutandis to the UPS. Thus any employees opting for the new scheme will continue to enjoy the same tax advantages and incentives as NPS members, providing substantial relief and clarity for those that are considering the switch.

Government sources emphasize that the introduction of UPS under the existing tax framework reinforces the administration’s commitment to transparent, flexible, and tax-efficient retirement options for Central Government employees.

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