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

What 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? 

Also Read: Best Largecap Mutual Funds to invest in India

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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107 thoughts on “What is Superannuation Fund Benefit in India and How to calculate it?”

    1. Hi Atul, This would depend on several factors about whether you want to get simple pension till life long or whether premium paid needs to be paid back etc., In simple pension plan, one can get pension income between 6% to 7% of the premium paid. in this case of Rs 10 Lakhs, one can get between Rs 60,000 to Rs 70,000 pension income per annum for life long

  1. Vasant Paranjpe

    I am a pensioner of an approved superannuation fund named ITC Pension Fund, Kolkata. I commuted 1/3rd of my full Pension and am receiving 2/3rd of my full Pension as my monthly pension through LIC since May 1999. 1/3rd of my full Pension ,reduced from my pension, is used towards recovery of lumpsum amount paid to me at my retirement in May 1999. Till March 2021, three times the lumpsum amount paid to me has been recovered in these 22 years. My question is that when all such recoveries of Commutation amounts are stopped after 15 years from retirement in all cases of EPFO pensions and some cases of NPS 95 pensions, why the same benefit of Restoration of commuted portion of pensions after 15 years has not been extended to these ASF pensioners?

  2. Sir I want to know about how SAF pension calculate. If total saf accumulation is 2 lakh . How get monthly pension?

    1. This would depend when you want pension and various options under it. It also depends on your insurance company where your superannuation fund is. e.g. if your SAF is in LIC, pls approach them and then can provide the checklist based on which you would know the monthly pension amount

  3. Dear Sir

    I have been working in the current comp. since eight years. In my previous company (before 2014) I was entitled for Superannuation I worked there 10 years, I merged my SA with current company’s SA. My current SA value is approx. 200000 (excluding old one). If I leave this company and convert my all the SA amount as a pension (immediately). Can I do it? My SA is with LIC.
    Regards
    Ajay

    1. If you leave your current company, there are three options for you

      1) Take immediate pension i.e. you would get pension from subsequent month. If you are in young age / middle age, you don’t need money now, hence opting immediate pension might not be useful

      2) You leave it as is and continue with new company. This step is high risk, as tracking with your current employer would be painful

      3) Move this SA to NPS. This is another good option where NPS would be in your control. However moving SA to NPS is little painful process where you need to approach your current NPS POC and make the entire process run. This is tedious process, but if you can make it happen, such funds can be useful for your retirement.

    2. Hai sir
      I have been paying 15% of my basics to superannuation funds. I would like to know that is there any process for tracking the balance and interest rate. And if I want to withdraw the amount can I get the full amount suddenly or I have to wait until my retirement. Pls guide i have accumulated around one lakh.
      Thank you

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