What is tax benefit of Superannuation Fund

What is tax benefit of Superannuation Fund

You may have knowledge about provident fund however  you may not be aware regarding Superannuation Fund and want to know what is tax benefit of superannuation fund. This article will give you clear idea about tax treatment of superannuation for both employee and employer .

What is tax benefit of Superannuation Fund

Superannuation fund is like provident fund however there is difference that it is not mandatory for employee to contribute to fund. Employer contributes fixed percentage of salary to Superannuation fund . Generally they open policy with LIC and contribute monthly to superannuation fund

PART B of the Fourth Schedule of Income Tax Act cover the provision of Approved Superannuation Funds

Related section as per Income Tax Act : [See Sections 2(6), 10(13), 10(25)(iii), 36(1)(iv), 87(1)(e), 192(5), 206(2)]

Definitions

  1. In this Part, unless the context otherwise requires, “employee”, “employer”, “contribution”, and “salary” have, in relation to superannuation funds, the meanings assigned to those expressions in Rule 2 of Part A in relation to provident funds.Same is mentioned as per Annexure -1 .

‘Approved Super Fund’ means a superannuation fund(S.F.) or any part of a S.F.  Which has been and continues to be approved by the Chief Commissioner of CIT in accordance with the rules contained in Part B.) Section 2(6))

Tax Treatment:

Employee’s Contribution: Deduction is available U/S 80C from Gross Total Income. This is subject to total deduction limit of Rs. 1.50 Lacs.

Employers’ Contribution: Contribution by the employer to the approved superannuation fund is exempt up to Rs.1,50,000 (Rs. 1,00,000 upto A.Y. 2016-17) per employee .  Any contribution exceeding Rs. 1.50 Lacs ( Rs.. 1 Lacs up to  A.Y. 2016-17 ) shall be taxable in the hands of the employee .

Interest on accumulated balance:It is exempt from Tax  as per Section 10(25) (iii) .Any income received by the trustees on behalf of an approved superannuation fund;

Payment from fund: Any payment from an approved superannuation fund shall be exempt if it is made:

  • On the death of a beneficiary; or
  • To any employee in lieu of or in commutation of any annuity on his retirement at o after a specified age or on his becoming incapacitated prior to such retirement; or
  • By way of refund of contributions on the death of beneficiary; or
  • By way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement , to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon
  • By way of transfer to the account of the employee under a pension scheme referred to in section 80CCD(NPS) and notified by the central government. (clause (v) inserted by the Finance Act,2016 , w.e.f. A.Y. 2017-18 ) (Section 10(13) )
Important Points:
  1. Where any contributions towards Superannuation made by an employer including interest on contributions , if any are paid to any employee during his life time in circumstances other than those referred to in section 10 (13) given above, such amount shall be taxable in the hands of the employee .
  2. Where any contribution towards Superannuation by an employer (including the interest thereon, if any) are repaid to the employer, the amount so repaid shall be deemed, for the purpose of income- tax, to be the income of the employer of the previous year in which it is so repaid.
Other Deductions:

Section 36(1)(iv) : The deduction provided for in the following clause shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—

any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head “Salaries” or to the contributions or to the number of members of the fund;

Annexure -1
Definitions:

(a) “employer” means any person who maintains a provident fund for the benefit of his or its employees, being—

(i) a Hindu undivided family, company, firm or other association of persons, or

(ii) an individual engaged in a business or profession the profits and gains whereof are assessable to income-tax under the head “Profits and gains of business or profession”;

(b) “employee” means an employee participating in a provident fund, but does not include a personal or domestic servant;

(c) “contribution” means any sum credited by or on behalf of any employee out of his salary, or by an employer out of his own moneys to the individual account of an employee but does not include any sum credited as interest;

(d) “balance to the credit of an employee” means the total amount to the credit of his individual account in a provident fund at any time;

(e) “annual accretion” in relation to the balance to the credit of an employee, means the increase to such balance in any year, arising from contributions and interest;

(f) “accumulated balance due to an employee” means the balance to his credit, or such portion thereof as may be claimable by him under the regulations of the fund, on the day he ceases to be an employee of the employer maintaining the fund ;

(g) “regulations of a fund” means the special body of regulations governing the constitution and administration of a particular provident fund; and

(h) “salary” includes dearness allowance, if the terms of employment o provide, but excludes all other allowances and perquisites.

Hope above article is helpful and provide clear details regarding what is Superannuation Fund and What is tax benefit of Superannuation Fund .

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