New Delhi: Finance Minister Nirmala Sitharaman has introduced the Taxation Law (Amendment) Bill, 2025 in the Lok Sabha. This bill updates the Finance Act, 2025, and the Income Tax Act, 1961, with the primary aim of aligning the taxation rules of the Unified Pension Scheme (UPS) with those of the National Pension System (NPS).
1. Tax-Free Withdrawals at Retirement
UPS subscribers will be allowed to withdraw up to 60 percent of their pension corpus at the time of retirement, voluntary retirement, or superannuation without paying any income tax.
2. Lump Sum Payment on Superannuation
Upon superannuation, subscribers can receive a lump sum amount equal to 10 percent of their monthly salary (basic pay + dearness allowance) for every six months of qualifying service completed. This payment will not reduce the subscriber’s assured monthly pension.
3. Tax on Early Withdrawals
If a subscriber or their nominee withdraws money from their UPS account before retirement or superannuation, the entire amount withdrawn will be treated as income and taxed in that financial year.
4. Exit from the Scheme or Account Closure
Closing a UPS account or opting out of the scheme before retirement will also make the withdrawn amount, including any accrued interest or returns, fully taxable in the year of withdrawal.
5. Transfer to Pool Corpus
At retirement, if any remaining balance in the subscriber’s corpus is moved to the pool corpus for purchasing annuities, this transfer will not be treated as taxable income.
6. Rules at Age 60
When a subscriber turns 60, they can withdraw 60 percent of the total pension corpus tax-free, while the remaining 40 percent must be used to purchase an annuity plan. The income from the annuity will be taxed as per the subscriber’s applicable income tax slab.
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