Superannuation Pension Benefits, withdrawal & Taxation in India

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Superannuation is probably a less touched topic by Indians. Most people do not know what it means, what are the benefits and how it can it help you on a bigger picture. Superannuation is basically a part of your salary that is put aside for your retirement. This amount goes towards your pensions post-retirement such that you do not crumble financially. This amount can be taken out and utilized by you post your retirement. Superannuation is basically a long term saving plan. The amount contributed by you will earn value over time and you can enjoy the benefits tax-free.
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Superannuation is an additional support towards your pension apart from EPF.

Superannuation retirement plan

Superannuation benefit plans

There are two types of superannuation benefits plan.

  • Defined benefit

    In this, the amount received on retirement is fixed. The employer is aware of the amount he will receive at the end of their service. The amount depends on the designation and their salary. Usually, employees prefer defined benefit plan as the risk involved is minimal.

  • Defined contribution

    In this plan, the contributions made towards the savings scheme by employees and employers is known and fixed. You will not receive a fixed amount post your retirement. Thus it is the risky plan as the member does not know how much amount he shall receive after his completion of service.

Superannuation with LIC & Other Banks like ICICI, HDFC, SBI, Axis.

Your employer makes a yearly contribution towards your superannuation account. It is advisable to know your savings balance such that you can plan your investments better. LIC superannuation fund is one such agency where your employers can contribute on your behalf.

  • The Company pays 15% of basic wages as superannuation contribution. There is no contribution from the employee.
  • Also, the rate of interest gained on this amount is usually equivalent to the PF interest rate.
    On reaching the retirement age, the employee is eligible to take 25% of the balance available in his/her account as a tax-free.
  • The employee can receive the remaining 75% on a monthly/quarterly/periodic annuity returns depending on the option opted by him/her. This is subjected to tax deductions.
  • In case any employee resigns, he/she can transfer the superannuation amount to the new employer. In case the new employer does not have a superannuation scheme, then the employee can withdraw the amount in the account but it will subject to deduction of taxes.
  • On completion of three years, the employee can withdraw 1/3rd of the accumulated balance after retirement and can avail the rest as monthly pension till end of life. For example, if an employee retired with SAF corpus of INR 15 lakh, hence he can withdraw INR 5 lakh (= 1/3 of 15 lakh) which will be fully tax-free and buy an annuity from an insurer with the rest of the amount of INR 10 lakh.

ICICI bank also provides superannuation accounts. The rules remain the same in both the accounts. The rate of interest might vary in both insurance companies.

saving for post retirement

Taxation on superannuation fund

So basically your employer will make from 0% – 15% contribution of your basic salary towards the fund. The Commissioner of Income Tax approves all superannuation fund. The rules pertaining to this is in Part B of the Fourth Schedule of the Income Tax Act. You must check with your employer for the status of your superannuation.
The taxation on superannuation fund are as follows:

  • Employee’s maximum contribution can be 1.5 Lakhs.
  • No taxes levied on interest received on the superannuation funds.
  • Employers’ contribution is of the maximum of 1 Lakh towards superannuation fund. Thus there is exemption from taxes till the maximum cap. Above 1 Lakh, taxes will be levied.
  • If the employee wishes to withdraw before retirement and at the time of resignation, the entire amount will subject to tax deductions. There are exceptions to this rule where there are no tax deductions such as
    • On the death of an employee, the amount will pass on to their legal heir.
    • If the payment is made to an employee as an annuity plan after their retirement (voluntarily or due to age limit)
    • Then, any commutation of the annuity is exempt from tax.
    • If the employee has some disability.
    • Contributions made before April 1, 1962, are exempt from taxation.

Another important point to note is that once the employer creates a superannuation trust, then employer can’t stop contributing in between.

 

16 Responses

  1. Priyadarshini

    July 11, 2017 8:23 pm

    I have resigned from a concern after completion of 6.5 years. I have been told that i can withdraw 1/3rd of the amount and for the 2/3rd of the amount i will have to choose an annuity plan, which i am not willing to do. They tell me that the option of withdrawing the 2/3rd of the amount is not possible.
    I read from your page that we can withdraw the money if we want to, but it will be taxable and i am fine with it.I am not going work anymore and i would like to withdraw the money.
    So i would like to get some inputs on this. Is there any rule that applies for my situation that prevents me from withdrawing the amount.
    If NO, then what steps can i take to withdraw the entire amount?

    Reply
  2. Priyadarshini

    July 11, 2017 8:23 pm

    I have resigned from a concern after completion of 6.5 years. I have been told that i can withdraw 1/3rd of the amount and for the 2/3rd of the amount i will have to choose an annuity plan, which i am not willing to do. They tell me that the option of withdrawing the 2/3rd of the amount is not possible.
    I read from your page that we can withdraw the money if we want to, but it will be taxable and i am fine with it.I am not going work anymore and i would like to withdraw the money.
    So i would like to get some inputs on this. Is there any rule that applies for my situation that prevents me from withdrawing the amount.
    If NO, then what steps can i take to withdraw the entire amount?

    Reply
  3. Anil

    July 27, 2017 8:40 pm

    “Regarding tax treatment of SF fund money”
    Sir,
    I was working with company ABC from 2005-08.
    An amount X got accumulated in my SF fund.
    Both myself and company ABC forgot to settle that amount X at the time of separation on 2008.
    Last year 20016, company contacted me and asked to withdraw the balance amount X, said that its lying idle & since 2008 and did not even earn interest.
    They deducted TDS @ average of previous 3 yrs ITR tax rate i.e. avg of 2005 to 08.
    I got the balance amount i.e. Y= X – TDS (@avg of 2005-08 tax rate which came to ~20%) into my bank account in FY2016-17.
    Now I have to file my IT return for FY2016-17.
    My Question is would the amount I received i.e. Y would be taxed @ my current tax slab ( do I need to pay the diff tax amt) OR there is some other way to treat this amount, if yes please advice.
    Request advice as soon as possible as I need to file my return before 31st Jul’17, and I hav’t got this answered / confirmed as yet from many people I asked.
    Please advice.

    Reply
    • Nidhi

      August 1, 2017 9:55 pm

      Yes, this income will come in your current financial year. If you come is 20% tax bracket then no issue, if you come in 30% bracket that you will need to pay 10% tax more.

      Reply
  4. Anil

    July 27, 2017 8:40 pm

    “Regarding tax treatment of SF fund money”
    Sir,
    I was working with company ABC from 2005-08.
    An amount X got accumulated in my SF fund.
    Both myself and company ABC forgot to settle that amount X at the time of separation on 2008.
    Last year 20016, company contacted me and asked to withdraw the balance amount X, said that its lying idle & since 2008 and did not even earn interest.
    They deducted TDS @ average of previous 3 yrs ITR tax rate i.e. avg of 2005 to 08.
    I got the balance amount i.e. Y= X – TDS (@avg of 2005-08 tax rate which came to ~20%) into my bank account in FY2016-17.
    Now I have to file my IT return for FY2016-17.
    My Question is would the amount I received i.e. Y would be taxed @ my current tax slab ( do I need to pay the diff tax amt) OR there is some other way to treat this amount, if yes please advice.
    Request advice as soon as possible as I need to file my return before 31st Jul’17, and I hav’t got this answered / confirmed as yet from many people I asked.
    Please advice.

    Reply
    • Nidhi

      August 1, 2017 9:55 pm

      Yes, this income will come in your current financial year. If you come is 20% tax bracket then no issue, if you come in 30% bracket that you will need to pay 10% tax more.

      Reply
  5. Amogh

    October 26, 2017 2:53 pm

    My father has a superannuation fund with HDFC through his employer. He retired two years ago but did not withdraw the amount. He will turn 58 in May 2018 and is Parkinson’s patient. Can he withdraw the amount now or after he turns 58? If now, how much will be taxable? Does he receive any tax benefit for being disabled (Parkinson’s disease)?

    Reply
  6. Amogh

    October 26, 2017 2:53 pm

    My father has a superannuation fund with HDFC through his employer. He retired two years ago but did not withdraw the amount. He will turn 58 in May 2018 and is Parkinson’s patient. Can he withdraw the amount now or after he turns 58? If now, how much will be taxable? Does he receive any tax benefit for being disabled (Parkinson’s disease)?

    Reply
  7. Isaacparry

    April 2, 2018 1:33 pm

    I received my first 1/3 rd payment and then opted for the annuity llan through quarterly payment just in last two quarters. But my PF is stuck in EPFO and im unable to do anything further due to which im having financial burden now. Is it possible in any way i can withdraw my amount completely ?

    Reply
  8. Isaacparry

    April 2, 2018 1:33 pm

    I received my first 1/3 rd payment and then opted for the annuity llan through quarterly payment just in last two quarters. But my PF is stuck in EPFO and im unable to do anything further due to which im having financial burden now. Is it possible in any way i can withdraw my amount completely ?

    Reply
  9. G.Mukherjee

    February 10, 2020 7:42 am

    Suppose i take an early retirement at 58 (my company allows full benefits for retirement after 55)while my company’s official retirement age is 60, will the superannuation benefits be tax free as per s.10(13)? What is “specified age” under s.10(13)?

    Reply
  10. G.Mukherjee

    February 10, 2020 7:42 am

    Suppose i take an early retirement at 58 (my company allows full benefits for retirement after 55)while my company’s official retirement age is 60, will the superannuation benefits be tax free as per s.10(13)? What is “specified age” under s.10(13)?

    Reply

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