Group Superannuation

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Most employees keep on planning and restructuring their savings to reap its benefits after retirement, but they are not aware of a benefit that they are automatically eligible to if they are working in a company for at least more than a year.
Yes! The superannuation scheme is a retirement benefit that is offered by the employer to the employee.
It is important to be aware of how the superannuation policies work and the taxation rules around them when these benefits are to be availed. This will enable the employee to wisely plan for his retirement and take decisions of reinvestment or withdrawal accordingly.
Listed below is certain information that employees must be aware of from an early age that surround the superannuation fund created for them by the employer:

  1. Types of superannuation funds:

There are two types of funds: Defined benefit and Defined contribution.
In the defined benefit fund, the employee can be aware of the contribution that the employer makes to the fund every time. The employee can also offer to contribute a part of his income if he wants to plan his retirement savings wisely.
The second type of fund is called the contribution fund. In this, the employee is unaware of the amount that the employer contributes towards it. But, an employee can always check the fund’s status with its employer, i.e., whether his superannuation is approved by the Commissioner of Income Tax.

  1. Contribution by the employer:

An employer generally contributes 15% of your basic salary and DA towards your superannuation fund. This 15% is the upper limit and may vary according to factors like your post and years of service.

  1. Taxation in general cases:

In case an employee retires, he can withdraw 1/3rd of the accumulated amount and 2/3rd must be converted into pension. Else, buy the pension product from the entire amount which is tax-exempted.

  1. Rule while shifting jobs:

If you shift jobs, then you can either transfer the whole fund account to the new employer or let it remain with the old one till your retirement age. Sometimes, the lack of superannuation scheme with the new employer might lead you to withdraw the whole amount or transfer the whole fund with the previous employer in an annuity account. You can thus reap its benefits later on.

  1. Taxation on approved superannuation fund:

As mentioned earlier, whether an employee’s fund is approved or not can be sought from the employer. However, if the fund is approved, an employee needs to be aware of certain rules around the same:

  • If the employee is contributing to this fund then under the Section 80C of the Income Tax, the contribution up to Rs. 1.5 lakhs is tax-free.
  • The employer’s contribution is also tax-free till it is limited to Rs. 1.5 Lakhs. If it exceeds this limit, then the contribution becomes taxable.
  1. Rule if total amount is withdrawn at retirement:

If an employee withdraws the whole amount of the Superannuation fund immediately after retirement, then the whole amount will be counted as taxable income. It will be included in “income from other sources” and taxes will be levied on it according to general tax slabs.

  1. Special tax exclusions:

In case the whole amount of superannuation is withdrawn by the family of the employee in case of his death, such withdrawal will be tax-free. Similarly, in case the employee suffers from permanent total or partial disability caused due to accident at job or otherwise, the same rules would apply for withdrawal.

  1. Types of annuity schemes:

There are different types of annuity schemes available according to the kind of fund created. Accordingly, the two basic types of annuities are immediate and deferred. With an immediate annuity, employees can begin receiving payments soon after making an initial investment. On the other hand, deferred annuity accumulates the amount for some fixed duration till an employee is eligible to receive the payments.
So, it is feasible to take a deferred annuity if there is still time for retirement. Contrarily if the retirement age is near, it is better to avail an immediate annuity scheme.
So, a superannuation fund benefit is a crucial part of employment which must not be ignored as it can form the most significant part of savings after retirement.
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