UPS Tax Exemption: Good news for government employees! Now UPS will also get tax exemption like NPS, know the new rule

There is good news for government employees! Now UPS (Unified Pension Scheme) will also get tax benefits like NPS. The government has fixed 30 September 2025 as the last date for switching to UPS.

If you are a central government employee and want to choose UPS (Unified Pension Scheme) instead of NPS, then now you will continue to get the same tax exemption. Yes, the Finance Ministry has clarified in a press release issued on July 4, 2025 that the same income tax benefits will now apply to UPS, which were till now available only under NPS. This step can prove to be a big relief for those employees who want to adopt the new pension scheme UPS instead of NPS.

The government has said that to promote UPS, now the same tax benefits will be available on it, which were till now available under NPS. Since UPS is available as an option under NPS, the same tax rules will apply to both. This will ensure that there is equality in both the schemes and the employees who choose UPS can also get good tax exemption and incentives.

What are the tax benefits in NPS?

When employees invest money in NPS, they get tax exemption. This exemption depends on whether they have chosen the old tax system or the new one. This exemption is also available to common investors.

Benefits available in the old tax regime

80CCD(1): If you invest money in NPS from your salary, you can get tax exemption. The limit of this exemption is 10% of your basic salary or ₹1.5 lakh, whichever is less.

80CCD(1B): Apart from this, if you have invested ₹50,000 more in your NPS Tier-1 account, you get additional tax exemption on it.

80CCD(2): The money that the government gives in your NPS account (about 14% of basic salary and DA) is also tax exemption.

New tax regime

In this, you will get tax exemption only on the contribution made by the government to your NPS account (Section 80CCD(2)). Government employees can avail tax deduction of up to 14% of their basic salary and dearness allowance (DA) for this exemption. But the money that you deposit in your NPS account yourself does not get any exemption in the new tax regime.

How much tax exemption can government employees get in UPS?

Navin Wadhwa, Chartered Accountant and Vice President, Research and Advisory Division, Taxmann.com says – ‘Central government employees who choose UPS for pension will now get the same benefits as they used to get under NPS. If they choose the old tax regime, they will get the same exemption under Section 80CCD(1) and Section 80CCD(1b). But clarity on the maximum deduction under Section 80CCD(2) is still needed. Because under this, 14% of basic salary + dearness allowance (DA) can be taken as maximum deduction in both old and new tax regime. However, the government’s contribution in UPS is 18.5%, which is more than the contribution of NPS.

Chartered Accountant Ashish Niraj says – One of the major reasons for choosing UPS less was the uncertainty regarding the taxation of UPS. Now the government has clarified that the tax benefits will be applicable like NPS, which will make people understand clearly. It has also been told by the government that the employees will deposit 10% of their basic salary and dearness allowance (DA) in UPS. The government will also deposit the same amount, i.e. 10%, in your account. Apart from this, the government will deposit an additional 8.5% in a separate fund for the entire employees, which will further increase the pension confidence. In this way, the total government contribution in UPS is around 18.5%, and you are expected to get tax exemption accordingly.

What is the last date to switch from NPS to UPS?

Central government employees can switch from NPS to UPS by 30 September 2025. Earlier its last date was 30 June 2025, which has now been extended. NPS is a new option under UPS, which has been started from 1 April 2025. Its purpose is to give a fixed or guaranteed pension to the employees after retirement. In this, both the employee and the government contribute every month and the same money is deposited and invested in a fund, which provides pension every month after retirement.

If an employee has worked for at least 25 years, he will get 50% of his average basic salary of the 12 months just before retirement as pension every month. If the service is more than 10 years but less than 25 years, then pension will be given in proportion to that. It has also been decided in UPS that if an employee has worked for 10 years or more, and the contribution has been deposited on time (and no money has been withdrawn in between), then he is sure to get a pension of at least ₹ 10,000 per month.

The post UPS Tax Exemption: Good news for government employees! Now UPS will also get tax exemption like NPS, know the new rule first appeared on informalnewz.

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