The tax structure and benefits available with Superannuation Schemes in India is as follows:
Tax on Contribution to Superannuation Fund
An employee’s contribution to the superannuation fund is exempted from tax up to Rs. 1.5 Lakh (for F.Y. 2016-17) under section 80C. Interest accrued on the superannuation fund investment is not taxable.
Employer’s contribution to the superannuation fund of an employee is exempt up to Rs. 1.5 Lakh. Any amount which is above the limit of Rs. 1.5 lakh is considered income of the employee in the year it has been made:
Tax on Withdrawal from Superannuation Fund
Upon retirement, the employee has two options:
(1) Withdraw 1/3rd of the accumulated amount, and 2/3rd must be converted into annuity, or
(2) Buy the pension product with the entire amount, which is tax-free for an employee.
If an employee withdraws their superannuation fund at the time of resigning from a company (but before 60 years of age), the tax will be levied on the entire amount.
However, there are certain exceptions to this rule, as per the following:
- The legal heirs receive the payment after the employee’s death.
- An employee receives the payment as an annuity plan after their retirement (voluntarily or due to age limit).
- An employee who is disabled or suffering from critical illness receives the payment.
- Contributions made before 1st April 1962 are tax-free
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Case Study – Tax Benefits in Superannuation Schemes
Founded in 1999, K.S. Infotech is one of the leading IT companies in Pune. The company has subscribed to an approved superannuation fund for its employees where it is regularly contributing to the fund. As it is not mandatory for employees to contribute, it is the company alone which is making a contribution. The company has bought the superannuation plan from one of the public-sector insurance companies.
Besides motivating employees, superannuation fund also helps K.S. Infotech in saving their taxes. The contribution made by the company enjoys tax benefits as per the Income Tax Act. Two months back, three software engineers left the company and withdrew their superannuation fund. As per the law, the tax was levied on the withdrawal amount.
In 2012, the HR manager of the company Mr. Rajesh Singh, met with an accident when his motorcycle hit the truck coming from the other side. Due to the collision, Rajesh became disabled. At that time, he received a tax-free superannuation payment to support his family.
In conclusion, it is essential to explore and understand the tax benefits available with Superannuation Schemes in India to make informed decisions and maximize the advantages they offer. With the right strategy and awareness of the tax implications, individuals can effectively utilize Superannuation Schemes as a valuable tool for long-term financial planning and tax optimization.
About The Author
Trisha
MBA Finance
With seven years of experience in the insurance industry, Trisha is a recognized expert in group superannuation. As a dedicated writer for SecureNow, she crafts insightful blogs and articles that clarify the complexities of group superannuation schemes. She is passionate about educating businesses on the benefits and management of retirement plans, making technical details accessible and practical. Their deep understanding of superannuation regulations and best practices ensures that readers receive up-to-date and valuable information, establishing Trisha as a trusted voice in the insurance community.
