Does your employer offer you superannuation benefit? Whether you know how it works and what are the tax benefits? Many employees not aware or never bothered. Because the contribution is not from their own pocket. Let us discuss more about this benefit.
Below are the features of this benefit.
- There are two types of superannuation benefits. One is called defined benefit-Under this, the benefits at retirement or pension are already known to an employee and it is fixed. Therefore, the risk of generating such defined benefit is purely on an employer (usually based on a formula linked to salary, years of service). The second one is called defined contribution-Under this, the contributions by employers is only known and fixed. However, the end benefits of retirement are not guaranteed. In such type of benefits, the risk is with an employee as he doesn’t know how much he will get at retirement.
- The contribution to this benefit is purely by an employer. So nothing will be payable from your own pocket.
- Usually an employer buys the product from insurance companies like LIC’s New Group Superannuation Cash Accumulation Plan and continues to contribute there.
- The company pays 15% of your Basic+DA. This 15% is not fixed, but a maximum limit is 15%. Therefore, based on company rules, it may change from category of employees. However, there must be same contribution for a category of employer. For example, if a manager level category offered 15% superannuation, then all managers are eligible for 15% superannuation benefit. No single manager will be allowed to receive less than or more than that mark.
- This contribution is invested by the managing company as per the guidelines set in the policy.
- Once you attain a retirement age then you have two options. One is to withdraw 1/3 of such accumulated amount and 2/3 must be converted as a pension. The second option is to buy the pension product fully without commuting anything. Any such commutation is tax-free for an employee.
- The returns of the funds may differ as each employer has the option to select the superannuation providing insurance company like LIC or ICICI. In LIC, this superannuation plan is an endowment type of product where returns will be not that much attractive. However, ICICI offers both ULIP and Endowment superannuation plans.
- If an employee resigns, then he has an option to transfer his amount to the new employer (provided both trusts are approved). If the new employer does not have superannuation scheme, then he can withdraw the amount in the account (which is taxed accordingly) or retain the amount in the fund till the retirement age.
- Once the superannuation trust is formed, then employer can’t stop contribution in the middle. The employer can stop the contribution only when the trust is wound up.
Type of annuity options available
It purely depends on the annuity provider. However, the common pension options are as below.
- Payable for life.
- Payable for life guaranteed for 5 yrs.
- Payable for life guaranteed for 10 yrs.
- Payable for life guaranteed for 15 yrs.
- Payable for life with a return of capital.
- Payable jointly on the life of husband and wife
What tax benefits of superannuation?
For taxation purposes, there are two types of superannuation. One is approved superannuation and another is not approved. This approval will be from IT Dept. The approved fund means a fund, which is approved and continues to be approved by the Commissioner in accordance with the rules set out in Part B of the Fourth Schedule of the IT Act. You can ask your employer about the status of superannuation.
Employer
- Employer’s contribution to an approved superannuation fund is allowed as expenditure deduction for business under Section 36 (1) (iv), subject to limits set out in Rule 87 and 88 of the Income-tax Rules, 1962.
- Income received by the trustees on behalf of an approved superannuation fund is exempt under Section 10 (25) (III). Usually, companies form a trust to avail tax benefits on the contributions made to the superannuation benefit.
Employee
- Employee contribution (In case employee voluntarily opted, which is only possible in case of defined contribution, but not in the case of defined benefit) for an approved superannuation fund is eligible for deduction under Section 80C, subject to the limits set in Section 80CCE.
- Any commutation of the annuity is exempt from tax.
- Benefits payable on death or injury are exempt from tax.
- The employer’s contribution in excess of Rs 100,000 is treated as a perquisite in the hands of the employee under.
- Pension or Annuity will be treated as salary income and taxed accordingly.
Note-This whole information is generic purpose. Some features may depend on the insurance company your employer opted for superannuation.
View Comments
I resigned from my current organisation serving 4.8 year .while company contributed 15% of my basic as a part of ctc .they said that they are inventing in some mutual fund .
Will I get this amount and also can I continue for this superannuation scheme post this my current company .
Dear Vinita,
Better check and get the clarity on this front. Companies can't invest on thier own with your money.
Hello Sir,
I have taken early retirement at 57. I have superannuation from the company, where they have provided an option to withdraw 1/3rd which is taxable and remaining 2/3rd to be investing in annuity ( with LIC).
Are there options to avoid tax on 1/3rd withdrawl amount.
Can i opt for 100% annuity to avoid tax
Can i retain tge amount in tge superannuation fund till i reach 60 and then withdraw 1/3rd which i believe is tax exempt .
Can i request you to please advise
Many thanks and regards
Srikanth
Dear Srikanth,
The only option is to opt for 100% annuity or wait till the age of 60 years.
I have resigned from my company. There is superannuation fund parked in form of mutual as unit with birla sunlife. Based on current nav the fund value is around 35 lacs.
Can i withdraw fund and invest in some annuity pension plan to avoid TDS ?
Dear Sudhir,
Avoiding TDS does not mean avoiding tax.
I have resigned and not looking to work as of Mar 2023. I recieved SA and wanted to know how will this get taxed and how and under whcih head should it be filled during Tax filing ?
Dear Abhaykumar,
Please read the above post.
Whether I can change / reduce / stop my Superannuation contribution amount from upcoming financial year after 3 years of service in the same organization?
Whether there will be any impact due to reduced contribution (to LIC)from 4th year onwards?
Dear Yogesh,
Check with the employer.
Dear sir ,
I hv worked in a company where superannuation applicable and my company was contributed 15% to LIC.
After my retirement now I m getting a monthly pension from LIC. Please confirm if this will b part of salary or other income. If in salary I can get standard deduction so need your confirmation.
Thanks and regards
Satish Prasad Thapliyal
Dear Satish,
It is considered as salary income.
Hi Mr Basu,
I have left the company & there is SA fund of around 15 lakhs without taxation.
Can I move complete 15 Lakhs to SBI NPS directly as I am not taking it out for my personal use.
Regards,
Vicky
Dear Vicky,
Yes.
Hi Mr. Basu,
Thank you for a wonderful article on Superannuation.
I had a question, I have resigned from my current job and new employer does not have a superannuation fund. Can i transfer my superannuation fund to NPS?
Regards,
Abhishek
Dear Abhishek,
Yes.
Dear Sir,
Myself Amit Dave, found you from google search regarding the Super Annuation fund related posts.
Sir, i had worked in indian corporate for 16 years and company has deducted my super annuation @ 15% of my basic salary and credited same to LIC.
I had resigned from company 2 years back in Jun-2020 and 3 months back company has given full withdrawal option of my Super Annuation fund and i choose the same option. But they are deducting flat 31.2% tax and rest amount will be credited to my account. The Superannuation amount is more than ? 26,24,518/- (more than 26 lacs)
As per indian tax system of old tax regime and new tax regime can company deduct flat 31.2% tax? Sir, as per my current year income i have calculated the tax deduction as per new tax regime the deductible tax amount will be ? 5,45,850/- but company will deduct my tax of ? 8,18,850/- which is flat 31.2% of my eligible super annuation fund as mentioned above ?26,24,518/-. As per my understanding and knowledge if company deduct flat 31.2% tax than as per my current financial year income i should file tax return in next year Jul-2023 and have to claim excess tax deduction as refund for ? 2,73,000/-. Is it really fair with me which company is doing?
As per my knowledge and current income tax slabs (2022-23) of indian government, flat 30% tax is applicable above ? 10,00,000/- under old tax regime and flat 30% tax is applicable above ? 15,00,000/- under new tax regime.
Sir, i request to guide me if i am right or wrong. If i am right can i fight with company for tax deduction? Can company deduct flat 31.2%tax?
I am really grateful to you if you can guide me by today on above issue, so i can communicate to company accordingly.
Thanking You.
Regards,
Amit Dave
Dear Amit,
I am not sure why they deducted the tax on the whole amount as only 40% is taxable not 100%. Also, not sure why they considered the highest tax bracket. However, if your tax liability is less than what they actually deducted, then you can file ITR and claim a refund.
At what income tax rate is 1/3rd amount of super annuation is taxed by a company when employee resigns before attaining retirement age ? Also , due to personal reasons employee is not pursuing any other job .