Unified Pension Scheme explained: 5 must-know income tax benefits ahead of September 30 UPS switch deadline 

Here’s what you need to know about income tax benefits under UPS

1. When an employee retires, they receive a lump sum payment from the Unified Pension Scheme (UPS). This amount is calculated based on 10% of the monthly salary (which includes Basic Pay plus Dearness Allowance) for every six months of completed service. This lump sum payment is completely exempt from income tax under Section 10(12AB) of the Income Tax Act. So, you don’t have to pay any tax on this amount when you receive it at retirement.

2. When a subscriber retires under the UPS, they can choose to withdraw a part of their pension savings, specifically, up to 60% of their individual corpus (the total accumulated amount) or the benchmark corpus, whichever is less. This withdrawal amount is exempt from income tax under Section 10(12AA) of the Income Tax Act. So, you won’t have to pay any tax on this portion when you withdraw it at retirement.

3. When employees contribute to UPS, they can claim a tax deduction on their contributions up to 10% of their monthly salary (which includes Basic Pay + Dearness Allowance). This deduction comes under Section 80CCD(1) of the Income Tax Act. So, your contributions reduce your taxable income, helping you save on taxes while securing your retirement.

4. The amount partially withdrawn by a subscriber to the extent of 25% of his own contribution from the Individual Corpus is exempted from tax under Section 10(128) of the IT Act.

5. For UPS subscribers, any amount transferred from the individual corpus to the pool corpus at the time of superannuation or retirement is deemed not to have been received by the assesses in the relevant previous year. Such transfers within the UPS framework are not taxable as income under Section 80 CCD(6) of the IT Act.