Do I Owe More Tax on My Superannuation Settlement After a 20% Deduction?

Income Tax on Superannuation Settlement

I am 41 years old. I resigned from my previous job after 3 years of service during the financial year 2013-14. When the company did my final settlement, they settled my Superannuation amount too and deducted tax on it. The tax they deducted was calculated based on the average rate of tax deducted on my income during my last 3 years of employment. This comes to about 20%. That is, the company has deducted approximately 20% tax on my Superannuation settlement. I got this clarified from the company, and it seems right as per the tax laws.

My total income from all sources for the year comes under the 30% tax bracket. Since the company has deducted 20% tax on the Superannuation settlement, do I need to pay the remaining 10% tax on the Superannuation settlement?

Or, is it that I don't need to pay any more tax on my Superannuation settlement other than what the company has already deducted?

Please clarify...

Thanks,

Kiran

No, you don't have to pay an extra 10% tax on the SA amount; what the company has done is perfectly correct and is as per the IT Act provisions in this regard. While filing ITR, you need to show the SA earnings separately under a different slab category. In case of doubt, please check with a CA before filing your ITR.

Thank you for your reply. Subsequent to your response, I consulted with a few CAs. However, they did not provide me with a conclusive answer. Would you be kind enough to elaborate on how to show the superannuation settlement under a different tax slab? I did not find a way to account for it in the ITR-1 form. I truly appreciate your response. Thank you.

Regards,
Kiran

Dear Mr. Dixon,

Thank you for your reply. Subsequent to your response, I consulted with a few CAs. However, they did not provide me with a conclusive answer. Would you be kind enough to elaborate on how to show the superannuation settlement under a different tax slab? I did not find a way to account for it in the ITR-1 form.

Truly appreciate your response.

Thanking you.

Regards,
Kiran

The information provided here by you is very much inadequate. There is no one single item called superannuation settlement; it should be either in the form of salary, arrears of salary, gratuity, PF, pension, or what? Unless you mention specifically item-wise with the nature of payment, it's not possible to give you an appropriate opinion on that. I'm also not sure at the age of 41 years, superannuation settlement is new to me. And I further could not believe even CAs didn't give you a conclusive opinion; it still puzzles me as they are the ones concerned with giving proper advice. Please provide full details so that I can try.

Kind regards,
Regards

Dear Sir, I worked in an IT company. My salary structure included the following "Retirement" components: (1) Provident Fund, (2) Gratuity, (3) Superannuation, apart from other components of the salary. The one I am talking about is this Superannuation component of the retirement benefits. (It is not part of PF or Gratuity or Pension).

My company has an associated trust called "Employee's Superannuation Fund Trust," in which the Superannuation contribution was deposited by the company on a monthly basis. Unlike PF, the company made no deduction from my monthly salary towards the superannuation fund. So, obviously, it had only the employer's contribution.

When I resigned from the company after 3 years of service, I was given the option to withdraw the accumulation in my Superannuation fund from the company's Superannuation Trust. I exercised this option, hence received the Superannuation settlement amount as part of my final settlement.

By the way, my PF settlements were done separately from the company's Provident Fund trust, another entity. Likewise, my Gratuity settlement was also done separately. In addition, I also received my accumulation from the Employee Pension Scheme (EPS). All these settlements were in addition to the Superannuation settlement.

Hope the above information provides more clarity. If you do need more information, please do let me know.

Warm Regards,

Kiran

Superannuation Settlement Tax Clarification

Please be informed that the Superannuation settlement details you have provided do not arise out of either 'termination on account of closure of establishment' or 'voluntary retirement before the specified age of superannuation' to qualify for exemption under Section 10 of the IT Act. This payment is made upon your resignation. Therefore, it is to be taxed as part of the salary received in advance, as it has not been classified as either 'Gratuity' or 'PF/leave encashment on retirement,' which have specific exemptions under the IT Act.

For your reference, a case similar to yours that was decided earlier by the Competent Authority is attached. This will provide a better understanding of the IT provisions in this matter.

Kind regards,
Regards

In my opinion, superannuation is taxable when withdrawn before the superannuation date. If you withdraw the same before the superannuation date, the employer will deduct TDS at an average of 3 years' tax. You have to show this as salary income in your return and need to pay the differential tax on the superannuation amount. Even if you purchase an annuity from LIC, the monthly/quarterly/annually amount received must be shown as income and taxed. Even if you take a 1/3rd withdrawal, the withdrawal amount is taxable.

Thanks,
Bhat

Dear Mr. Bhat,

Thank you very much for your response. Based on your response, and also from other responses (such as Mr. Kumar, etc.) on this thread, it is clear to me now that I have to pay the differential tax on my superannuation settlement. I will do so. Your response has been of immense help to me in gaining clarity on this matter. Thanks so much!

Warm Regards,
Kiran

Dear Mr. Dixon, Thank you very much for your replies. I have entered my salary and superannuation details under the TDS section in ITR-1. I have also received Form 16 from my company's superannuation fund trust. As you have suggested, I also checked my Form 26AS on the income tax website. It shows my superannuation tax credit correctly.

In ITR-1, it shows that I still have to pay additional tax since only 20% tax has been deducted on my superannuation settlement by my employer.

Further to your earlier response, I learned (from the PRO and Technical officer at the Income tax department office, and also based on replies on this thread from other members) that my superannuation settlement is fully taxable. While the employer has deducted 20% as TDS, I have to pay the remaining 10% since I have withdrawn the amount before I turned 60 years of age.

Thank you again for your replies.

Warm Regards,
Kiran