Good news for central government employees under the Unified Pension Scheme (UPS)! Finance Minister Nirmala Sitharaman on Monday introduced the Taxation Laws (Amendment) Bill, 2025 in the Lok Sabha, under which UPS subscribers will now get the same tax exemption as the National Pension System (NPS).
UPS tax treatment: What is the change
According to the bill, 60% of the corpus amount received by the UPS subscriber at the time of retirement, voluntary retirement or superannuation will not be taxed. That is, like NPS, now this amount will be tax-free in UPS as well. Apart from this, the lump sum payment received on the basis of service period – which is 10% of the monthly salary for every six months of qualifying service – will also be tax free.
The bill says, “any payment from the National Pension System Trust to an assessee, who is a subscriber to the Unified Pension Scheme, to the extent that it does not exceed sixty per cent of the individual corpus, as specified in notification number FX-1/3/2024-PR, dated the 24th January, 2025 of the Department of Financial Services, made at the time of his superannuation or voluntary retirement or retirement under clause (j) of rule 56 of the Fundamental Rules [which is not treated as penalty under the Central Civil Services (Classification, Control and Appeal) Rule.”
“…any sum received as a lump sum amount as per clause (vi) of paragraph 2 of the notification number FX-1/3/2024-PR, dated the 24th January, 2025, of the Department of Financial Services, by an assessee being a subscriber to the Unified Pension Scheme will also be tax exempt,” according to the bill.
What is UPS and how is it linked to NPS?
The UPS, implemented from April 1, 2025, was launched with a purpose to simplify and integrate the existing pension system. Under this scheme, government employees get a fixed monthly pension along with flexibility of investment and withdrawal like NPS. UPS is managed under the NPS Trust, which means all the tax benefits of NPS will now apply to UPS as well.
Why is this tax rules change important?
Till now, UPS did not have tax exemption like NPS, which could increase the tax burden on employees at the time of retirement. But after the implementation of this bill, UPS subscribers will not only get the assurance of regular pension, but also the benefit of tax savings like NPS.
The government says that this step will help employees to stay in the pension scheme for a long time and increase financial security.
Last month, the Finance Ministry in a statement announced that “the government has decided that tax benefits as available under NPS shall apply mutatis mutandis to UPS as it is an option under NPS”.
This ensures parity with the existing NPS structure and provides substantial tax relief and incentives to employees opting for the UPS, the ministry said.