What is Superannuation Fund Benefit in India and How to calculate it?

What is Superannuation Benefit in India and how to calculate itWhat is Superannuation Fund Benefit in India and How to calculate it?


When we think of retirement benefits, Employees Provident Fund (EPF) Public Provident Fund (PPF), Gratuity and National Pension Scheme (NPS) are the few things that strike our mind. Very few people know that there is another benefit plan existing known as the superannuation benefit. In order to plan your retirement in a better way, it is very important to know your superannuation benefits. It is an organizational pension program created by a company for the benefit of its employees. In other words, it is referred to as a company pension plan. What is Superannuation Fund Benefit all about? Who is eligible to get Super Annuation Benefit? How does Superannuation scheme work exactly? How Superannuation Calculation is done in 2020? What are various income tax benefits available in Superannuation scheme in 2020? 

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What is Superannuation in India?


Today, most companies offer a superannuation scheme, but many of might have less knowledge about superannuation act in India. Superannuation fund meaning in simple terms is a kind of retirement benefit that is offered to you by your employer. Your employer makes a contribution every year on your behalf towards the group superannuation policy held by the employer. Usually, the companies take Superannuation Plans from any of the approved insurance companies like LIC or ICICI approved insurance companies and contributes therein. The returns of the superannuation fund may differ according to the company providing the annuation insurance.

The employees who have been contributing to the superannuation scheme of their company during their employment; at the time of retirement or resignation have the option of buying a superannuation-linked pension from any insurance company.

What are various types of Superannuation Benefit?


There are two types of super annuation benefits:

1) Defined benefit plans

The benefits to be received at the retirement are already known to the employee and it is fixed on the basis of their rank service and final salary. So, the risk of generating such benefits is entirely on the employer.

2) Defined contribution plans

These schemes are better to manage as the employee and employer directly correlate it with the contributions made. The scheme defines the contribution of both and leaves the outcome to the market forces. Most of the plans existing today are defined contribution plans. Here, the risk factor is attached to the employee, as he is not aware of the amount he is going to receive at the time of retirement.

How does Superannuation scheme work exactly?


The companies open the superannuation benefit fund with any of the approved agencies like ICICI, LIC etc. Employer needs to contribute to maximum of 15% of the salary to superannuation funds on behalf of the employee. The companies are making this part of the salary structure itself i.e. part of CTC. There is no specific contribution from employees like it is for EPF. Upon retirement or resignation from his job, his employer to either withdraw his entire superannuation fund or choose the annuity option and gives the employee.

How is Superannuation Benefit calculated?


The superannuation calculation on the basis of following points:

1) Less than 1 year of service – NIL.

2) 1 to 2 years of service – 50% of contribution + interest received from fund.

3) 2 to 3 years of service – 75% of contribution + interest received from fund.

4) 3+ years of service-100% of contribution + interest received from fund.

The above table reveals that if the employee wants to benefit himself from the superannuation fund, he needs to be associated with the company for more than 3 years. Then only, the employer would contribute to 100% of the amount allocated for superannuation. If he works for less than 3 years, he would not be benefited though it is a part of CTC structure.

Though it looks superannuation calculation is confusing, if you can understand the basics, it would be easier.

What happens to Superannuation scheme if employee resign from a company?


If an employee resigns from a company and moves to another company, he can transfer his superannuation fund to the new company if the new company is having approved superannuation fund. Superannuation withdrawal on resignation in India can happen only in case, new company does not provide this facility. In such case employee can withdraw the amount with necessary taxes applicable or retain the amount in the fund till the retirement.

What are various income tax benefits available in Superannuation scheme?


For the purpose of taxation, there are two types of superannuation. One is approved and the other is not approved. This approval is taken from the IT Department. The approved fund means that the fund has been approved by the Commissioner in accordance with the set rules. The employee needs to ask his/her employer about the category of the fund.

From the employee’s point of view, here are the tax benefits:

1) Employee contribution (possible in the case of defined contribution and not defined benefit) for an approved superannuation fund is eligible for deduction u/s 80C, subject to the limit set in Section 80CCE.

2) Benefits payable on death or injury are tax-exempted.

3) Pension or annuity will be treated as salary income and taxed accordingly.

4) At the time of change of job, any amount withdrawn is taxable under the head ‘income form other sources’.

5) Interest from a superannuation fund is tax-free.

6) On retirement, 1/3 of the commuted fund is fully exempt from tax and the remaining amount if transferred to an annuity is tax-free and if the amount is withdrawn, it is taxable in the hands of the employee.

From the employer’s point of view

1) The contribution of employer to the fund is allowed as expenditure deduction for business u/s 36(1)(iv) subject to certain limits of the Income Tax Act 1962.

2) Income received by the trustees on behalf of an approved superannuation fund is exempt u/s 10(25)(III).

What happens to your Superannuation scheme when you reach retirement age?


Once the retirement age is attained, the employee has two options-

Option 1 – To withdraw 1/3 of the accumulated fund and the remaining 2/3 be converted into the pension.

Option 2 – To buy the pension product for the entire amount without withdrawing anything. Such commutation is tax-free for an employee.

For instance – X retires with a superannuation fund of Rs 15 lakh. Then, he may withdraw Rs. 5 lakh from it (1/3 of Rs. 15 lakh). It is totally tax-exempt. The remaining Rs. 10 lakh is fully taxable if he withdraws and if he buys annuity from this amount, it is tax-exempt. He can use the entire amount of Rs. 15 lakh for buying annuities.

Also Read: How to check if you are eligible for Gratuity from your company?

What are various annuity options available in Superannuation?


At the time of retirement, post-retirement annuities can be bought from any life insurance Company. The most common options available to the employee are –

  • Payable for life
  • Payable for life guaranteed for 5 years or 10 years or 15 years
  • Payable for life with a return of capital
  • Payable jointly on the life of husband and wife

Conclusion: Superannuation scheme is an excellent for the working class of India to make their retirement more financially stable. The employees are much more secured with these schemes. Another benefit from such schemes is that the employee is prompted to be associated with an organization for a longer term as such schemes provide more benefits to them rather than switching jobs more frequently.

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Suresh KP

What is Superannuation Benefit and How to calculate it

Suresh KP

61 comments

  • Rashmi

    Hi Sir,

    I just joined a new company which has superannuation fund (SAF) as part of CTC which comes under flexible benefits plan(FBP). And they said it is one time activity that means I can opt for SAF only at the time of joining.
    My previous employer does not have this so I was not aware and I opted for this. I really do not have any idea whether it is really beneficial?
    My question is for an individual like me who is 30 years old and need money at this time not at retirement is it really worth to opt for this?
    Also when can i take this money out

    Thanks in advance

    • Hello Rashmi, As per my personal opinion and experience Superannuation has several drawbacks compared to other retirement options like NPS / EPF etc., Request you to go thru the article to understand Superannuation. This option would be helpful to you only to save tax. On other hand your take home salary would be lower (as superannuation would get deducted). The control of superannuation account is with employer and not employee. Where as for NPS or EPF or PPF it is in the control of employee (in EPF one can transfer to new employer if change in job which is within control). Many employees who opted for Superannuation had no clue now on how to claim / track after they switch to new jobs. This is major drawback in opting superannuation. Think before opting for such options.

  • Sivaraman

    Sir ,

    I am 61 years old and still working as a regular employee of my company . I am yet to retire. My company is still contributing to the LIC super annuation scheme for me .

    My query is that , for a GIVEN corpus amount , does a person who a starts receiving pension at the age of , say 62years , get more pension compared to a person who starts receiving pension at 60 years ? My query is based on the fact that the person who retires late will get pension for for less number of years assuming both live till same age , where as, the corpus amount is same in both cases .

    Could you please give a detailed clarification ?

    Thanks

    Sivaraman

    • Hello Sivaramanji, Pension amount would depend on corpus accumulated, start date of the pension expected and expected tenure for which you would get pension (in case opted for specific number of years). In your case, corpus would continue to accumulate till you opt for pension amount. e.g. Say your company is still contributing to superannuation till your 63 years of age and then you retire(just example). Pension amount would be based on the accumulated amount (minus any withdrawal you are doing it). Hence in your case, it would be higher compared to a regular retired individual who would have opted for this during retirement at 60 years of age. You can approach your payroll department and get the accumulated superannuation amount. You can get the LIC superannuation manager details (who is managing it) and check with him how much pension you might expect in today’s scenario based on your accumulated amount and various options of tenure of pension.

  • Sourabh

    Hi,

    I am 34 years old and i have resigned from my company, my last working day was 15 July 2020. As of now i am jobless, I am not sure that i am eligible for superannuation or not?

    I do not have knowledge about the superannuation, can you please brief me about the superannuation in below points :-

    1) Please confirm that superannuation contribute by the Employer (Company) or employee?

    2) Is it mandatory to contribute towards superannuation just like as a PF?

    3) How do i get to know that my company shares the funds towards superannuation on my behalf

    4) If my company shares the fund towards superannuation, then how do i withdraw this amount after the resignation from company (I already resigned and my last working day was 15 July 2020)
    OR It can only withdraw after completing the age of 60 Years

    Please confirm the above points. Looking forward to hearing from you.

    I greatly appreciate your help!

    Thanks & regards,
    Sourabh

    • Hello Sourabh, As part of retiral benefits, some of the companies offer superannuation benefit to employees which is contributed only by employer. Pls check whether it is part of your CTC break-up, if yes, pls approach your company payroll department for the superannuation. since you have resigned, if superannuation is applicable, you can withdraw only partial amount now and take immediate / defer annuity for the balance amount. My advice is first check your CTC break-up + if it has superannuation, you can approach your company payroll department. I can assist you further once you close these two points.

  • Daya Kishan Mathur

    I am 59 yrs old and no job or working .can i take my superannuation fund .my past companies has been closed where should i contact.
    BDDL sahibabad ghaziabad.UP
    JCT Electronics mohali chandigarh.

    • Since the companies where you have earlier worked are closed now, you need to identify the insurance company where the superannuation is maintained and then you can claim it. It is little difficult task, but you need to identify. You need to check any of your past records under which insurance company such superannuation is invested. Without that it is difficult to trace it

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