Basic concept of Superannuation

There is a fund made for future pensions in which regular payments are given by employer. This is called as superannuation. This is a retirement benefit given to the employee by the employer. The company pays a fixed amount of basic pay and dearness allowance towards superannuation fund of each employee.

Approved Superannuation Fund?

  • It is very important to understand what is superannuation fund since tax benefits are only available in case of approved superannuation fund.
  • Superannuation fund is approved by Income Tax commissioner on the basis of meeting certain conditions.
  • Rules related to approved superannuation fund can be checked in Part B of the Fourth Schedule of the Income Tax Act.

Classification of Superannuation benefit

There are two types of superannuation benefits based on the gains as well as investment. They are as follows:

  • Defined contribution plans This superannuation benefit is very different from the other plan. In defined contribution plan the contribution is fixed and benefit from it is directly correlated with the contribution made. The benefits also depends on the market forces pertaining at the time of giving benefits.The benefit from defined contribution plan is easier to manage. The only issue is that the risk is with the employee as he or she is unaware about the amount he or she will receive at time of retirement.
  • Defined benefit plans In this kind of superannuation, the benefit is already fixed no matter what the contribution is. The employees benefit is pre-determined and fixed. The factors on which the predetermined benefits is based on are number of years of service in the company, age of the employee at which he or she started working and getting benefits, salary, and so on. This type of plan is comparatively complex and risk of this plan comes on the employer. At the retirement of the eligible employee receives a fixed amount that is determined at a regular interval.

Working of Superannuation

The employer contributes a sum assured to the employees superannuation fund. This fund is managed either by the company’s trust or any approved insurance company on behalf of the employer. A fixed percentage of the basic pay and dearness allowance of the employee is contributed by the employer for superannuation fund of a particular category of the employees.
As a fact this contribution is made by the employer and is thus a part of Cost To company(CTC). But an employee may also contribute voluntarily as an additional amount to the fund in case of defined contribution plans.

Types of annuity available

Common annuity options available under superannuation plans are:

  • Payable for life
  • Payable jointly on the life of husband and wife
  • Payable for life guaranteed for 5 yrs/10 years/15 years
  • Payable for life with a return of capital

When can Superannuation Fund be withdrawn?

The employee can withdraw one third of the accumulated funds at the time of retirement and convert the rest of the balance amount into regular amount at intervals as pension. This will in turn keep the annuity fund for receiving annuity returns at the intervals chosen.
In a case where the employee leaves the job and join other organization, he or she has an option to transfer the superannuation amount to a new company where he or she starts working.
If new employer does not have the superannuation scheme, the employee may withdraw the amount of fund or retain it till his retirement and withdraw after retirement.
If the amount is withdrawn by the employee at the time of switching of job, then it is taxable under the head “Income from other sources”, at the time of filing of income tax returns.

Benefits of Superannuation in income tax

Superannuation fund provides income tax benefits to both employee and employer. The major restriction is that the superannuation fund should be approved from the Commissioner of Income Tax in accordance with the regulations that are set out in Part B of the Fourth Schedule of the Income Tax Act.

The benefits in income tax are as follows;
  • For the Employer The contribution made by the employer in an approved superannuation fund is eligible to be deducted as a business expense. Any income that comes from self managed trusts of an approved superannuation fund is also exempt from taxation. Contribution by the employer in respect of any employee in excess of Rs. 1,00,000 is taxable as perquisites in the hands of the employee.
  • For the Employee If an employee voluntarily made an additional contribution to the approved superannuation fund it is deducted under Section 80C. The overall limit of deduction for employee is Rs 1,50,000 under Section 80C.
  • Payment made to an employee towards an annuity plan on retirement or after the age specified is exempt from taxation.
  • The benefit received from superannuation fund on death or injury of an employee are tax free.
  • Interest from a superannuation fund is exempt from tax.
  • If the employee becomes incapable of working before his or her retirement superannuation will be tax free.
  • Tax exemption can also be availed by transfer of the account of the employee under a pension scheme as in section 80CCD that is notified by the Central Government.


Superannuation is a kind of fund received by an employee at the time of retirement as pension benefit from the employer. The employer contributes a fixed amount of fund based on the salary, age and other factors. After retirement, this amount can be withdrawn by the employee and he or she can reap the benefits of it.

Frequently Asked Questions

Q- What is superannuation fund?

Ans. It is a fund received by the employee at the time of retirement.

Q- Who is benefited by the scheme of superannuation?

Ans: The employee is benefited with the superannuation fund after retirement from the job or various other circumstances.

Q- Who contributes to the fund of superannuation?

Ans. The contribution of the superannuation fund is done by employer. But in case the employee wants to contribute for additional funds, he or she can do voluntarily.

Q- Can I get deduction of contribution under unapproved Superannuation fund ?

Ans. No, only deduction in respect of contribution to approved superannuation is allowed.

Q- How can I check if my superannuation fund is approved or not?

Ans. You can do following things to check the same :

  • Check the documents
  • Your employer can also provide you the information of the same

Q- In case of change of job and the new company that does not have a superannuation fund, can I withdraw the money?

Ans. There are two options :

  • Withdraw your superannuation amount which is subject to tax
  • Keep the amount in superannuation account which will be available for your retirement benefits

Q- If withdrawing the money from a superannuation fund leads to taxation, what can I do to save it?

If you reinvest it in annuity scheme which provides you regular income upon retirement, it shall not be taxable.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.