NPS to UPS: Key switch rules, tax benefits and relaxations explained ahead of Sept 30 deadline

The clock is ticking for nearly 23 lakh central government employees who must decide whether to stay with the National Pension System (NPS) or migrate to the newly launched Unified Pension Scheme (UPS), which came into effect on April 1, 2025. The original deadline of June 30 was extended to September 30 to give employees more time, and a series of regulatory relaxations have been announced in recent weeks to help smooth the transition.

One-time switch flexibility

On September 2, the government allowed employees who opt for UPS to make a one-time switch back to NPS at a later stage. However, this option is only available once and must be exercised at least one year before retirement or three months before voluntary retirement (VRS). Employees facing dismissal, compulsory retirement, or disciplinary proceedings will not be eligible. The government said the measure adds flexibility and helps staff plan long-term retirement security.

Physical form submissions

With online systems facing heavy traffic as the deadline looms, the Pension Fund Regulatory and Development Authority (PFRDA) permitted employees to submit physical forms to nodal offices until September 30. This move, announced in early September, ensures that technical glitches in the online CRA system do not prevent employees from making their choice.

Relief for new joinees

Employees who joined central government service between April 1 and August 31, 2025, and opted for NPS, have also been given the option to migrate to UPS. The PFRDA said they could submit Form A1 physically through their nodal offices or training institutes by September 30. Once exercised, this option is final, though employees may choose to return to NPS later — provided the switch is made well before retirement.

Deputation cases

On September 24, PFRDA extended the physical form submission facility to employees posted abroad or on deputation to organisations outside UPS coverage. They may now file Form A2 through their parent office, though the September 30 deadline remains unchanged.

Tax treatment and parity

To clarify taxation, the government issued FAQs on UPS contributions and withdrawals. Like NPS, UPS allows:

Employer contributions of 10% of basic pay plus dearness allowance, deductible under Section 80CCD(2).

Employee contributions of up to 10% deductible under Section 80CCD(1).

Partial withdrawals of up to 25% of employee contributions tax-free.

Lump-sum payments at superannuation based on 10% of monthly emoluments for every six months of service, also exempt.

If the corpus exceeds the benchmark value, 60% of the excess is tax-free, while the remaining 40% is taxable. Pension income is taxed as salary.

In August 2024, amendments to the Income-tax Act created parity between NPS and UPS, effective from FY 2025-26. Section 10(12A, 12B, 12AB) now provides UPS subscribers the same tax exemptions as NPS, up to 60% of their corpus at retirement.

Official comparison tool

To aid decision-making, the National Pension Trust launched a UPS-NPS calculator in May 2025. Employees can input details such as date of joining, current pay, service years, corpus value, and expected returns to compare lump-sum payouts and pension flows under both schemes.

UPS and beyond

The UPS was announced in August 2024 after sustained demands from employee unions for a return to the old pension scheme (OPS), which guaranteed assured pensions. While UPS does not fully replicate OPS, the government hopes its balance of flexibility, tax benefits, and guaranteed lump-sum features will win acceptance.

As the September 30 deadline approaches, employees face a critical choice: stick with the market-linked returns of NPS or move to the structured benefits of UPS, knowing that the decision could shape their retirement security for decades.