Incomte Tax Benefit In UPS : Circular Of CBDT Clarified

Tax Treatment under Unified Pension Scheme (UPS): Clarification by CBDT

The Central Board of Direct Taxes (CBDT), under the Ministry of Finance, Government of India, has issued an Office Memorandum dated 8th July 2025 to clarify the tax treatment of the Unified Pension Scheme (UPS) introduced as an option under the existing National Pension System (NPS). This clarification comes in response to the Department of Financial Services’ request for concurrence on the applicability of Income Tax provisions to UPS.

Background

The Unified Pension Scheme (UPS) was introduced through a Department Gazette Notification dated 24th January 2025 as an optional alternative within the National Pension System (NPS).
The objective of the UPS is to provide a harmonized pension option to central government employees already covered under NPS, through an amendment to the notification dated 22.12.2003.
The UPS functions within the institutional NPS framework as regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Clarification Sought

The Department of Financial Services had requested clarification on whether the provisions of the following sections of the Income Tax Act, 1961 would be applicable to UPS:

Section 80CCD(1)
Section 80CCD(1B)
Section 80CCD(2)
Section 80CCD(3)
Section 80CCD(4)
Section 10(12A)
Section 10(12B)

CBDT Clarification

The CBDT has concurred that:

“The provisions of the above-mentioned sections shall be applicable mutatis mutandis to the Unified Pension Scheme (UPS) as it is an option under the National Pension System (NPS).”

This means:

All income tax benefits currently available under NPS will also be applicable to UPS.
The applicability will be to the extent of limits prescribed in each of the respective sections of the Income Tax Act, 1961.
However, any changes in the mode of payout or contributions under UPS beyond the prescribed structure will require legislative amendments.

Approval

This memorandum was issued with the approval of the Member (IT), CBDT.
Signed by:
Hardev Singh,
DCIT (OSD), ITA-I Division,
Email: usita1-cbdt@gov.in

Communication Addressed To

Director,
Department of Financial Services
(Pension Reforms Section),
New Delhi

Conclusion

The clarification ensures tax parity between UPS and NPS, encouraging eligible central government employees to opt for UPS without any tax disadvantage. It simplifies compliance and ensures a smoother transition for those choosing the UPS option.

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