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

What is Superannuation Fund 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? 

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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Suresh KP

164 comments

  1. Dear Sir,
    I shall retire on 31.12.2021. My SA accumulation is 20 L. 1/3 rd amount 6.67 L will be in my hand. Please advise for 2/3rd amount. What should be the approximate pension amount if I opt for (1) Payable for life or (2) Payable for Life for 15Yr (3) Payable for life with return of capital.

    1. SK Banerjee, difficult to say. You can contact the insurance company where your superannuation fund is deposited and they can give you various options along with approx pension income.

  2. I have resigned a MNC private company and my new employer does’nt have a SA scheme. I was employed in India with the employer for 9 years duration and my accumulated corpus is 2.2lakhs total.
    I need to know if below options are possible?
    A. 100%withdrawal or
    B. Transfer 100%to NPS account, what steps I need to follow or should ask the employer so that accordingly I can put up a request to previous employer for option A or B and what are the pros and cons with these options.

    1. 1) 100% withdrawal not possible
      2) Transfer 100% to NPS – Possible. You need to approach your employer or PoP (where you opened NPS) to transfer this to NPS Tier-1. If you transfer to NPS Tier-1, it is in your control. You can monitor the performance and when you attain retirement age, you can withdraw eligible amount / take pension amount online without any intervention from previous employers.

  3. Hello Suresh Sir,

    I have just joined a company where SAF is provided. I am not very sure whether to opt for it or not. though i have already registered for it. But thinking to deregister and it and opt for PPF instead. Could u please suggest and what could be other better options to invest.

    1. Sonal, I am not sure whether you have a choice to say NO if corporates are offering this to employees. There is no tax on the amount contributed to SAF as it is directly credited to your SAF account. If there is an option for corporate NPS, you should opt it over SAF. Beyond this there is no other benefit. Regd PPF it is your personal investment and company would not contribute. PPF is good option, however interest rates are fluctuating. Consider these aspects before saying either YES or NO

      1. Thanks sir..
        Yes I can say no to SA even now.. what I thought is since SA does not provide anyy life cover also . And LIC schemes now offer great returns and with life cover also .. so will it be fine if I choose other LIC scheme over SA..
        NPS is something I am not known to .. above all what to choose LIC/SA/PPF..

          1. Got it. Thanku so much for ur valuable suggestion..
            And I really appreciate the blog you are carrying forward. This is indeed a much needed information that every individual needs

  4. Dear Sir,

    Right now my employer is deducting 15% superannuation contribution from my CTC. I want to know if this deducted amount is exempted from taxable salary?

    Will I gain if I want to reduce the contribution to say 5%?

  5. Sir,

    I am working in TCS and now my age is 44 years. As of now i have accumulated around 7.9 lakhs in Super annuation fund. Also, i have the option of moving this superannuation to NPS internally in the organization. I need a better understanding why you say NPS is better than SAF. Need more clarity with respect to benefits in NPS rather having money in SAF.

    1. Yagnesh, You can continue to have SAF if company is contributing to your fund every year. The question was what happens if company stops SAF or if you are moving to new company where there is no SAF. Can an employee continue. In such case tracking is difficult. Many readers on this blog indicated that they are not able trace their SAF and previous company is not able to help. There are cases where previous company was acquired by new company and the new company is not aware about SAF at all. In such case, instead of leaving it till retirement age and breaking head on how to get this money, one can move them to NPS which would be within the control of the individual. Whenever they want they can go for pension plan.

      1. Many thanks for your valuable suggestions, I will continue with SAF in my organization.

        Suresh, I have few questions on VPF, I am not sure I can put my questions on the same blog.

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