Superannuation fund benefit is a kind of Pension scheme that employer provides to its employees. Since this does not require any contribution from the employee so generally this gets ignored by them. But it is important to understand Superannuation fund working,rules and taxation to make the best use of it.
I was of the view that now days with so many different options available with the employer to give benefit to employees, this superannuation benefit may not be opted by them since unlike Employee provident fund and Gratuity, this benefit is not mandatory for them.
But No I was wrong, as recently I have seen few salary slips of my new clients showing superannuation fund as part of their CTC. So this is still in existence, and that too in many big corporates.
Generally, Superannuation is a part of CTC (Cost to a company), and thus it reduces the take home salary of the employee. Though in some cases, the employer makes it optional for the employee and if the employee does not want this benefit, then s/he can ask for this amount in Monthly salary.
But this option has to be exercised only at the start of the Job. This is what I was advised by my Branch manager when I joined ICICI Bank back in 2003.
Does that mean that you should also do the same? Well, there is no harm in that, but only after understanding the product features. Because my and your requirements, risk profile, Investment behavior are different and thus Superannuation fund may suit you, even if it was not to me.
Moreover, it may also be possible that your employer may not give you the option to opt-out of it, as was the case with one of my client. Since Retirement Planing is your Most important goal, so if opted in, superannuation fund may become a very important participant in helping you accumulate a decent corpus.
Let’s first understand what a superannuation benefit is and how it works in the Indian scenario
What is Superannuation fund benefit in India?
The word superannuation is normally used as a synonym for Retirement. A Superannuation benefit is a Retirement benefit provided by the employer to their employees.
In simple terms Superannuation benefit is the pension plan bought by the employer for its employees. Employer contributes a certain amount to a Group Superannuation policy, managed in house in a Trust or bought from some insurance company for this purpose and at the time of Retirement, the employee starts getting pension depending on the plan variant which employer has opted for at the time of contribution, and also the option that employee may have to exercise at the time of Retirement. (Also Read: How to manage the post retirement income flow – bucketing strategy)
Superannuation benefit comes in 2 variants, where the employer decides as to what it wants employees to receive a pension as. It may be a defined benefit plan or a defined contribution plan.
In the case of defined benefit, a formula is worked out generally based on the last salary drawn by the employee, which results in a fixed amount which employee keeps on getting every month as pension/annuity, this amount may or may not keep increasing with Inflation.
Thus in defined benefit plan, the Insurance company and the employer have to work out how much return should be generated and how much contribution to be made to reach that defined level.
The second variant of superannuation scheme, which most of the employers opt-in for is the defined contribution plan. In this case Maximum of 15% of basic salary is contributed by the employer into the superannuation fund. Employees also have the option to contribute voluntarily to this fund. At the time of retirement whatever the corpus of the fund, that can be used to start with the pension/annuity amount.
In fact its not only at Retirement, if employee resigns after working for 10 continues years, he/she will have to mandatorily start with Pension. Though there are other alternative to this too, which i will be discussing later in this article.
Superannuation Scheme – Tax rules
First thing first, since the amount which Employer is contributing is something you are not receiving your monthly Salary, so it is not taxable in your hands. But there is one clause, where if the employer contribution exceeds Rs 1.5 lakh per employee in a financial year, then the extra amount will be taxed as Perquisite in the employee’s salary.
At the time of Retirement, the employee may withdraw 1/3rd of the corpus as commuted tax-free money and for the rest 2/3rd s/he has to compulsorily buy an annuity from the Insurer. But remember, if employee resigns before retirement and after completion 10 years of services then no Tax Free Lumpsum withdrawal is allowed.
Before completion of 10 years, If an employee leaves the organization before attaining superannuation/Retirement, then he may withdraw the complete money in the lump sum, which is completely taxable and will be added to his total Income in the year of superannuation withdrawal and to is taxed accordingly. (Read: EPF withdrawal rules)
Superannuation fund or New pension Scheme (NPS) – which is better?
If you know how NPS works, then you will find much more similarity in Superannuation and NPS, at least from contribution and distribution perspective. However, NPS comes under section 80CCD, where you can claim a tax benefit of Rs 50,000 more, which is over and above section 80C.
There are 2 main differences between superannuation benefit and new pension scheme. One is that, unlike superannuation, in NPS you cannot withdraw the account balance completely when you leave your job. You can only make partial withdrawal as per the rules laid down on NPS withdrawal and have to buy pension compulsorily or continue the account until retirement.
The other main difference is which depends on the type of superannuation scheme your employer has opted for. If it is ULIP then the corpus will generate market-linked investments and if it is endowment then it will generate the conservatively fixed return. Whereas NPS is a market-linked product.
Now this move by government is very interesting, as if employee resigns before retirement than rather than starting with Taxable pension, one may move the entire superannuation corpus to NPS account, and may keep continue the contribution. and later on actual retirement one may start with SWP in NPS and keep getting tax free pension till 75 years of age.
Conclusion:
As far as superannuation fund working is concerned, there is nothing to be commented on, as it has a set structure. However, when you compare it with other options available then definitely you look at the pros and cons of the product.
On the face of it to me, NPS looks like a more attractive product as compared to superannuation. As it has the potential to generate much better returns with working more or less similar to a superannuation scheme, one would be better off in NPS.
Had this been a comparison between EPF and NPS then I would have preferred EPF over NPS due to the taxable structure in NPS. But even then NPS has its own advantages which cannot be ignored.
So one can look at shifting Superannuation fund to NPS but only after understanding its working and figuring out its suitability with one’s future requirements.
Nice article detailing superannuation plan and how it works. I have two queries :
1. You said that if the employer contribution exceeds Rs. 1 lakh in a financial year, then the extra amount will be taxed as Perquisite in the hands of employee. I want to know under which section or clause of Income Tax Act this is applicable. To my knowledge, this is not so. Total expense/contribution allowed to an employer is 27% (12% toward PF/EPF and 15% towards superannuation) of the salary as business deductible expense. Nothing is mentioned on what you have stated.
2. Under what section or clause of the IT Act, it is mentioned that if an employees wants to withdraw the complete money in the lump sum form, then the entire amount is taxable in the hands of the employees and whether employer has to deduct any TDS on this or not. Because I have tried to withdraw my superannuation accumulation from my employer before retirement, they have said no. In fact, I offered them to deduct full TDS at marginal tax rate and then make payment to me, still they have said no.
You are requested to kindly put some clarification to these queries.
regards
Thanks, Kamal Ji
1. You may refer these Threshold limits and see point number 23. http://www.incometaxindia.gov.in/charts%20%20tables/threshold_limits.htm
Also http://profit.ndtv.com/news/budget/article-tax-exemption-raised-to-rs-1-5-lakh-under-superannuation-fund-1282596 this would be of some help. I can see, I have goofed up a bit as it seems the limit of Rs 1 lakh has been increased to 1.5 lakh
2. This was the result of my discussion with one of my friends who has just left his job. Since he has gone abroad and thus superannuation balance cannot be transferred to another employer, so he was allowed to withdraw the complete amount.
1. Your referred point No. 3 from your file reads like this:
“Tax on contribution to an approved superannuation fund by the employer in respect of the employee” – so it is tax on contribution not on withdrawal. What we are discussing is tax on withdrawal.
2. I am still of the opinion that superannuation cannot be withdrawn earlier than retirement. There is no provision in the relevant laws to this effect because this situation was not envisaged when the relevant rules were made. At that time, people used to work till retirement with same or one employer, mostly. Now scenario has changed.
Hi Manikaran, this article is really worth a read as special for people like me who have recently entered the industry it’s important to know what all money is been deducted from your salary and how it’s going to benefit you in future.
Hello Manikaran,
Thank you for the information. I have been contributing to Superannuation for more than 5 years now. From this year I want to move to NPS.
1. Can I withdraw my Superannuation funds completely ? If so from when I can withdraw it.
2. If I have to transfer the Superannuation funds to NPS, then clarify whom should I approach for this step ?
Thanks,
Raghu
Please refer to this PFRDA circular for the complete process https://npscra.nsdl.co.in/download/pdf/Transfer%20of%20amount%20from%20recognised%20PF-Supperannuation%20fund%20to%20NPS.pdf
Nice article. But my doubt is not answered here. I fall in 30% tax bracket. I already have my home. There is no home loan. I am already contributing to NPS 50k. Now employer has asked me if i want to opt for OR out of superannuation. Superannuation gives me fixed 8.3% round abut returns + 1.5 L tax benefits each year. in comparison if i get that 1.5 L in-hand then max return i will get is 12 to 13% from MF SIP. With this comparison which will give better returns? if you have some statistics to support the answer will be really great. Thanks for reverting back soon as i want to revert to my employer for giving superannuation option in 2 days time.
Vikas, if there is superannuation then definitely there will be EPF too in your salary structure, which would also be contributing in your 80C savings. If you are financially well planned then you must have bought term insurance policies too which are again part of your 80C savings. If you have school going children then there school expenses can be claimed in 80C savings. So all in all 80c savings is not a concern here.
Now coming to product returns – You have rightly pointed out the differences in SA and MFs, as 8.3% and 12%, and this is actually huge…and over a long time frame, compounding of returns will create a huge difference in the corpus.
But the main point is taxation, if you receive superannuation fund in your in hand salary then this will expose the money to taxes and your investible money would be reduced by 30%.
I think you should better work on your suitable Investible asset allocation first, and design your Investment portfolio. See, if you can fit superannuation amount in the Debt side of the investment. If yes, problem solved.
Dear sir,
i want to withdraw my Superannuation so tell me what is the procedure?
if i withdraw is it taxable ? if YES how much rate of interest? pls
Hello.
Thanks for the article. I had SAF in my prior company. My current company does not offer that. Can I transfer that to any bank and continue as I don’t want to withdraw now. Thank you
I don’t get you. Transferring to bank is equal to withdrawing only
Dear Manikaran,
I have existing superannuation fund where my employer contributes 8% of my Basic salary. Now Employer is offering NPS wherein contribution can be upto 10% of Basic Pay. Can both the contributions go together and I get the tax benefit.
Hi,
I have an option of supperannuation. If I opt out same contribution will be paid to be by employer as personal allowance. I have fully utilized 80C as I have home loan and few LIC endowment policies along with school going child who is 1st STD now.
So Do you think its better for me to contribute to NPS compared to Superannuation as I can avail tax rebate under 80CCD.
Yes. and even better if your employer contributes to the same account just like he would have done in Superannuation. But this will impact your inhand income. Just be aware of that
Dear Sir,
My 80C is already exhausted as I am availing Home Loan, children education fees. I am contributing in NPS should I opt for SA as the in hand salary is getting taxable for this slab.
1) If I opt for SA then definitely my take home salary decrease and advice if even tax will decrease !
2) Both NPS and SA could run simultaneously !
3) SA plan which one is better !
1. No. Superannuation maximum limit is 1.5 lakh only as it comes under section 80C
2.Yes. In fact, if your employer agrees and deposit SA money to NPS , then that can be counted as additional savings u/s 80ccd(2)
3. means?
SA is ‘contributed’ by the employer and Section 80-C is applicable for employees / tax payers and not for the employers/tax deductors.
And therefore, to my knowledge, there is no mention of SA under section 80-C anywhere.
Kamal Ji, when the employer is Contributing then it is not under 80C, but when an employee is contributing through an employer who is deducting from the salary and depositing, then it comes under section 80c. Just like EPF (Employee’s contribution). Its all about how the cost to the company is structured. Please correct me if I am wrong.
HOW can i withdraw the superannuation amount after resignation what is the procedure
SA is ‘contributed’ by the employer and Section 80-C is applicable for employees / tax payers and not for the employers/tax deductors.
And therefore, to my knowledge, there is no mention of SA under section 80-C anywhere.
Hi Manikaranji,
My new Employer has Superannuation(around INR 8000), that is part of my CTC.I am having one query Suppose i leave that organization after 2 years then i am eligible to withdraw my entite Superannuation amount ,and it is taxable.
I wanted to know also , we get any interest also every year on Superannuation amount.
Regards
Kumar
Hello Manikaran,
Could be a basic question.
Will there be any employer individual contribution towards employee Superannuation? like how they do for PF contribution (Employee+Employer contribution).
Thanks, Hari
Hi I understand Superannuation contribution by Company is not taxable upto 1 lakh per annum. Any amount over and above Rs. 1 lakh is taxed. Further upon withdrawl, I am told the entire amount (P + I) is taxed. My query is: My employer has been contributing more than Rs. 1 lakh p.a towards my SA and corresponding incremental amounts (above Rs. 1 lakh) have been duly taxed. Now when I withdraw, do I need to pay tax on the entire withdrawn amount or can I claim exemption for the amount of tax already paid against the incremental contributions
I believe you have to pay tax on both sides. i.e. on deposit above Rs 1 lakh by your employer as Income from salary and at the time of withdrawal even on the employer contribution amount. Still, better to check up on a good CA expert in Salary related tax issues
Sir,
My structure is under the superannuation scheme. However my company missed paying the super annuation due to certain difficulties. Now they are saying that they will pay the amount missed out with Tax amount as taxable in my hands. Total amount is app 50000 x 5 years=2.5 lakhs. Tax slab is 30%.
They are suggesting to take nps. What can you suggest in my case. Should the compensation amount be more. Should i take nps from the present year and should i look for a tax compensation as this will be treated as income.
Hi Sir, I have chosen superannuation in My Company and on the company website its shows enabled from 2012…it also shows total value.
However I didnt get any statement from ICICI. I leaving company in few months and will join another company.
What to do?
Can I transfer super annuation amount to NPS account with out loosing amount due to tax .
Hi,
How is the pension calculated for LIC superannuation. Lets say at the time of retirement, my account has corpus of 1 crore. I withdraw 1/3rd so the pension balance is 66 lacs. Now how much pension I will get monthly?
The idea on the pension amount can be gained from LIC Jeevan Akshay plan. This is the immediate annuity plan which is used to make pension arrangement for Investors. At the time of maturity whatever is left post commutation, that money be parked in LIC Immediate annuity and you will get pension at the then rates prevailing.
Dear Manikaranji, where can I get information about my superannuation status.
You have to check with your employer or the HR team
can i change my superannuation plan as i wrongly selected plan. As i want 1/3 amount withdrawal and 2/3 amount will be give to policy for 5 years
I think yes. Since the distribution will happen only on maturity and you could be able to change the maturity options.
the employee has withdrawn15/- lakh rupees from total accumulated balance of rs.84′- the fund authority has deducted the tds on the same @6 % on average rate rules applicable for approved super annuation fund. after filing the tds return the tds authority raised a query as a short deduction. why? where and how we have to show the total withdrawal amount of rs.15/- and tds deducted threre on @6% on average rate base. employee is already senior person.
As far as my understanding goes if superannuation is withdrawn before retirement, then the complete withdrawn amount is taxable and will be added in the income to calculate tax accordingly as per the slabs. It should be Shown under Income from other sources in ITR.
If withdrawn post-retirement, then 1/3rd to be tax-free and rest 2/3rd should be used to buy an annuity
I have 3 superanuation funds and getting pesion from all three quaterly,
can we merge them? if yes, then what is the process?
Or can we transfer those to NPS tier 1?
Please suggest
my age is 51 yrs
I am yogesh jha 60 year old can I opt withdraw my deposited superannuation amount.
Presently I am getting quarterly pension.
I wanna ask about dif.bw esop and espp
Please clarify your query. But as far as ESOP and ESPP are concerned, ESOP is a perquisite perquisite provided by various companies to its employees. It is a stock option provided by the employer under which the employees have the right to BUY a stock in future at a pre-decided price agreed at the time of giving those stock options. So in future whatever is the market price does not matter, employees always have an option to buy it at the price which was agreed upon.
ESPP is also a benefit given by employer to its employees to purchase the stock of the company at a discounted price. In an ESPP plan, an employee has to contribute a part of this salary in ESPP plan each month. An employee can choose how much of his salary he wants to contribute by himself. It can range from 1% to 15% of his salary. All the money which he contributes gets accumulated for few months and then in one go, stocks are purchased for him at some discounted price. On what price the discount will be given depends on your company EPSS plan. However in general its the minimum of the prices in the start of the EPSS plan and at the end of the ESPP plan.
I am married and having a kid. I am working and earn around 8.5 LPA. As of now, I am supporting my family with my earnings. But not sure really to how many years i would be in this job. I want to save tax, which one would you prefer me, NPS or superannuation? is there any better option than this? I have currently invested in a LIC insurance, Mutual Fund and VPF.
We understand your situation but not sure that you want to save tax or save for the future. Since your situation is quite peculiar, a holistic view of your finances would be required before doing any investments. In other words, a proper financial planning is required. We can offer you this service. Please go through our services from the link below:
https://www.goodmoneying.com/personal-financial-planning-services/
For you we can offer some discount.
is Superannuation fund is eligible if employee compledted 2.11 years in organasation?
How to calculate Super annuation Pension
Which one is benefit in super annuation. Lumpsum
It depends on the fund value accumulated and the rate offered by the insurance company.
Thanks for post. I’ve following two queries in terms of tax benefit between Superannuation and NPS: –
I’m already using my complete 80C limit (1.5L) for tax benefit through LIC and VPF.
Query 1. If I’m already using my complete 80C limit (1.5L), want to know if there is any tax benefit above 80C limit for chosing superannuation?
Query 2. Is it better to opt NPS (instead of superannuation) which gives tax benefit under 80CCD (50K over and above 80C limit of 1.5L)?
Employee Contribution comes under the 80C limit and is tax free up to Rs. 1 lakh, beyond that it is taxable.
Now, it depends upon your employer to shift to NPS then only you are eligible for NPS tax benefits.
Understood, thanks again Manikaran Ji.
I am retired and drawn 1/3 already from lic. I dont want to leave 2/3 for my son, instead want to draw it now and lead a comfortable living. Can I draw it now?
As far as we know, you may withdraw 1/3rd of the corpus as commuted tax-free money and for the rest 2/3rd
has to be compulsorily used buy an annuity. However, there are some recent changes in the rules, please confirm the same from your employer or the accounts department.
Would love to hear back from you, for the benefit of other readers.
Thanks.
what is the process or steps for employees to enroll under superannuation fund
The Super annuation seen as component of CTC is deposited monthly or annually in the supper annuation fund
It is deposited monthly. Though it is a part of CTC but the employer accounts for it on a monthly basis.
I need to know if i need to suggest my HR to start investment schemes which is better and beneficiary among NPS and Superannuation
We have written a detailed piece on this topic, comparing the pros and cons of both Superannuation and NPS, the link shared below:
https://www.goodmoneying.com/superannuation-fund-benefit-india/
Read and decide accordingly.
Tell me about superannuation fund create by companies
Superannuation benefit is the pension plan bought by the employer for its employees. Employer contributes a certain amount to a Group Superannuation policy bought for this purpose and at the time of Retirement, the employee starts getting pension depending on the plan variant which employer has opted for at the time of contribution, and also the option that employee may have to exercise at the time of Retirement.
What’s superannuation rate at present in India? How is this calculated
There is no fixed rate. It depends upon the variant and the annuity plan opted by your employer.
its regarding superannuation fund. what is the tax benefit that employer gets ? If as an employer we want to go for it then there may be a possibility that few employees do not want to go for it. so can we make it optional and then buy a policy for selected employees.
Taxation rules say that the employer may show the contribution made to the superannuation fund as a part of their employee benefit expenses in the profit and loss account, that way reducing the taxable profits.
However, if the contribution exceeds 1.5 lakhs per employee in a financial year, then the extra amount will be taxed as Perquisite in the employee’s salary.
Now coming to the second part of your query, yes you may make it optional for the employees and take further course of action accordingly. It completely depends upon the will of the employees, whether they want to go for it or not.
What is superannuation? Can I get it rightaway?
Superannuation benefit is the pension plan bought by the employer for its employees. Employer contributes a certain amount to a Group Superannuation policy bought for this purpose and at the time of Retirement, the employee starts getting pension depending on the plan variant which employer has opted for at the time of contribution, and also the option that employee may have to exercise at the time of Retirement.
We couldn’t understand the second part of your query, please elaborate.
If my employer didn’t agree to make superannuation benefit as a optional choice of a employee, where employee himself had taken tax benefits plan under 80C that is closer to 1,50,000 what can be done.
Superannuation is completely an employer’s choice. It would be a part of CTC if offered. There’s nothing an employee can do.
my company has included superannuation as part of CTC and every month it is getting deducted from my salary. I recently joined this company and I asked to opt it at the time of joining. I just want to ask whether it is beneficial for me. I am 30 yr old
It’s a kind of retirement benefit, generating some fixed return on investment. Should be good for the longer-term. However when you don’t take it then your in-hand income will increase and you will have the flexibility to invest it anywhere as per your choice and risk appetite. Since you are only 30 so you have ample time to accumulate and compound.
I have recently switched by job, the earlier company had a super annuation policy while the new one hasnt. How to save the Income tax on the super annuation amount that I received from my previous organisation during final settlement. Is there an option to invest in another annuity fund and save tax or anything else.
We are unable to get your query. Please elaborate.
Hi,
I want to know where the superannuation investment made like NPS has exposure to Equity and Debt (based on the allocation selected) so how it works for superannuation? Where is the amount invested to get a return in superannuation?
In Wipro I opted for superannuation investment from 2013 till July 2020. Now I siched to other company where this scheme is not there. I do I use this money now as it is blocked. What are the options available I have. I am 41 years old
As per the information we have, you can either continue your superannuation fund until retirement or withdraw the same now. If you decide to withdraw it now then it would be taxable and on retirement, it would be a tax-free withdrawal of 33% of the corpus and rest would be used to but an annuity scheme for a regular pension.
Rest assured, please talk to the HR Department of Wipro for further clarifications on the issue.
Hi, I was advised by my HR that I will need to transfer my superannuation funds to either NPS or purchase an Annuity plan. I have seen your comments on NPS being a good option but I also wanted your advice on what could be some of the good and reliable annuity plans to look out for. Also is it possible for me to break the total corpus of superannuation funds and invest it in both NPS and an annuity plan?
Please say about scenario of SABF vs NPS immature death of subscriber.