Superannuation is a retirement benefit or fund provided by your employer. The contribution is usually made by your employer on your behalf towards the group superannuation policy.
Companies usually have a link with insurance agencies like LIC and ICICIPru.
The company can pay the premium in the range from 5 per cent to 15 per cent and can opt to pay the same percentage for all its employees or pay different percentages for different on your salary and position.
The maximum limit which can be paid in 15 per cent. The rules may change depending on the manager level of the employees.
In a case where the employee resigns, he can transfer the amount to his new employer. However, one can withdraw the fund if the new employer does not provide the facility of Superannuation Group Scheme. Note, that tax will be applicable as per the tax slabs.
Common Pension options provided by insurance companies
- Pension payable at death.
- Payable for life with a return of capital.
- Guaranteed pension for 5,10,15 or 20 years and life thereafter.
- Joint Life Pension payable on the last survivor of the employee and spouse.
Advantages of Superannuation
On Retirement of an individual, the corpus along with interest accumulated is utilized to provide the pension as per his choice.
The Pension is payable on the life of the beneficiary. Corpus is utilized towards the payment of a pension of the type the beneficiary may opt and the benefit so received is tax-free.
Individuals are eligible to get the equitable interest transferred to the Superannuation Scheme of the new employer or opt for immediate or deferred pension.
- The annual contribution is treated as a deductible business expense in term of Section 36(1) (iv) of the Income Tax Act.
- 80 percent of the contributions made towards the past service liability are treated as deductible business expenses spread over in the subsequent years of payment.
- The employee's contribution, in the case of the Contributions scheme, qualifies for exemption under Section 80C of the Income-Tax Act.
- Benefits payable on death are exempt from tax.
- Admissible commuted value on retirement is tax-free.
- Interest on the fund is exempt from tax.
- The contributions paid by the employer are not treated as perquisites in the hands of the employee concerned.