Understanding Superannuation: Eligibility Requirements and Tax Benefits Explained

Dear Sirs, I am seeking your assistance regarding the Superannuation Scheme. I have gathered a significant amount of information on various schemes, but I still require clarification on the following:

1) Eligibility Requirements

Is there any statutory requirement for eligibility in the scheme? For example, is it compulsory for an employee to have a minimum of 5 years of service to avail the benefits of the Superannuation scheme upon leaving the company? Or does this depend on the company providing the Superannuation scheme?

2) Tax Benefits for Employees

What are the tax benefits for the employee? If the contributions are made by the employer, they will not be considered as income in the hands of the employee up to the limit of Rs. 100,000. Any amount above this limit would be taxable. Does this also imply that the employee's contributions up to Rs. 1 lakh are tax-free, and the amount above Rs. 1 lakh is subject to tax under section 80C?

Thanks & Regards,
Kedar Pradhan

Understanding Superannuation and Its Legal Aspects

Superannuation is not a legal requirement. Companies often opt for it as a retention tool. There is no statutory requirement or any prescribed eligibility in any law. It is generally governed by the trust deed and rules in each company. Normally, the eligibility is 5 years of continuous service. Employees receive the benefit of a pension on retirement, and they can also receive a part of the accumulated amount commuted. This occurs at the time of retirement and/or leaving the company after completing a prescribed minimum service.

Furthermore, there is no limit. The limit of Rs. 1 lakh had been imposed in the case of the levy of Fringe Benefit Tax (FBT), which has now been withdrawn. Currently, any contribution made by the employer is tax-free, and there is no limit.

Moreover, the employee does not receive any benefit from the contribution made under section 80C of the Income Tax Act.

I hope this information is helpful.

Thanks & Regards,

Avika Kapoor
Assistant General Manager - Business Development

Website: http://www.kapgrow.com

Dear Sir, Thank you very much for your assistance! Regarding employer taxation, I referred to the Direct Taxes Ready Reckoner by Dr. Vinod K. Singhania for the years 2010-11 and 2011-12. It is mentioned in the book that any contribution above 1.00 Lacs by the employer is taxable in the hands of the employee. Additionally, based on my understanding, contributions up to 27% (PF, SA, etc.) are tax-exempt for the employer. I kindly request you to provide clarification on the points mentioned above.

Thanks and Regards, Kedar Pradhan

The amount was taxable only in the case of FBT. In any case, Rs. 1 lakh was for each employee and not all the employees put together. Yes, a contribution of 12% for PF and 15% for superannuation (total 27% is exempt).

Hope this would help you.

Thanks & Regards,
Avika Kapoor
Assistant General Manager - Business Development
Website: Kapgrow