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What is Superannuation Fund? How is it taxed?

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posted Jul 14 by Durga Prasad

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A superannuation is an organizational pension program created by a company for the benefit of its employees. It is also referred to as a company pension plan. Funds deposited in a superannuation account will grow typically without any tax implications until retirement or withdrawal.

For taxation purposes, there are two types of superannuation. One is approved superannuation and another is not approved. This approval will be from IT Dept. The approved fund means a fund, which is approved and continues to be approved by the Commissioner in accordance with the rules set out in Part B of the Fourth Schedule of the IT Act. You can ask your employer about the status of superannuation.

Employer

Employer’s contribution to an approved superannuation fund is allowed as expenditure deduction for business under Section 36 (1) (iv), subject to limits set out in Rule 87 and 88 of the Income-tax Rules, 1962.
Income received by the trustees on behalf of an approved superannuation fund is exempt under Section 10 (25) (III). Usually, companies form a trust to avail tax benefits on the contributions made to the superannuation benefit.

Employee

  • Employee contribution (In case employee voluntarily opted, which is only possible in case of defined contribution, but not in the case of defined benefit) for an approved superannuation fund is eligible for deduction under Section 80C, subject to the limits set in Section 80CCE.
  • Any commutation of the annuity is exempt from tax.
  • Benefits payable on death or injury are exempt from tax.
  • The employer’s contribution in excess of Rs 100,000 is treated as a perquisite in the hands of the employee under.
  • Pension or Annuity will be treated as salary income and taxed accordingly.
answer Jul 15 by Shamita
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