What is Superannuation Fund Benefits and How it Works?

If you are Salaried employee, you would have had the option to save via Superannuation Fund. But what is superannuation and how it works? Do you get interest, tax benefits and can you retire using this fund? Let us answer all these questions and understand this fund in more details.

Superannuation Fund is a type of pension fund which helps the employee to save for his or her retirement. The employer / company helps in contributing the amount in the fund from their side to save for your future. This helps to secure your retirement age apart from provident fund, public provident fund and other pension funds. The fund amount is part of your CTC (Cost to company). You also earn interests on the balance of your superannuation fund. This can help you in your retirement.

Table of Contents

Superannuation Fund Explained in Hindi
What is Superannuation Fund in Salary?
Is Superannuation Fund mandatory?
How Superannuation Fund Works?
Meaning of Superannuation in Hindi
Withdrawal from Superannuation Fund
Are superannuation and PF the same?
- EPF (Employee Provident Fund) Interest Calculation
Income Tax Benefits
Conclusion

Let us now understand Superannuation Fund in more detail.

Superannuation Fund Explained in Hindi

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Let us now understand this fund in more detail.

What is Superannuation Fund in Salary?

Superannuation Fund is a type of pension fund which helps the employee to save for his or her retirement.

The employer or company helps in contributing the amount in the fund from their side to save for your future. This helps to secure your retirement age apart from provident fund, PPF (Public Provident Fund) and other pension funds.

The fund amount is part of your CTC (Cost to company). So you can expect a deduction against superannuation fund in your monthly salary payslip.

When you switch jobs between companies, you can withdraw the amount in your superannuation fund. In case of retirement, you can take monthly pension using the funds you have accumulated in this fund.

Is Superannuation Fund mandatory?

Superannuation Fund is not mandatory and you have the option to take the fund amount to be credited as in hand salary every month.

You can use this fund to either invest in mutual funds or save for your own requirements. opting for Superannuation can help you to accumulate funds for your retirement.

How Superannuation Fund Works?

15% of Basic pay + DA (Dearness allowance) is considered to be contributed in this Fund by your company.
The same is being contributed every month and accordingly the deduction is mentioned in your monthly payslip.

Payslip with superannuation fund not opted

As seen above, it is the example of payslip with superannuation fund credited in your monthly in hand salary and is not opted.
Similarly, this amount (Rs. 3075) will be contributed in the fund in case you choose to
Notice that the fund amount will be 15% of Basic Salary displayed. So 15% of Rs. 20,500 (Basic Salary) will be Rs. 3075. You can calculate the fund amount based on your monthly Basic Salary + DA
The limit of contribution in this Fund is maximum Rs. 1.5 Lacs in financial year
Amount exceeding this limit will be treated as perquisite in the hands of employee and will be taxable.
The interest you earn in this Fund is tax free post retirement.

ALSO READ: Rs. 1000 PPF Interest Calculation for 15 Years

Meaning of Superannuation in Hindi

The word superannuate means “to retire“. And before retirement we need to have sufficient amount as balance in our account for retirement purpose and to meet our expenses while we enjoy free time.

That’s the reason this scheme is used – for retirement purpose to accumulate required funds for you.

Withdrawal from Superannuation Fund

After retirement, you have the option to withdraw 1/3 portion of the amount accumulated (Tax Free) and buy annuity with 2/3 portion of the remaining amount (non taxable). However, If you want to withdraw this 2/3 portion, it will be taxable in your hand.

This annuity plan will help you to get pension every month. If you withdraw the amount while switching or changing jobs, than the amount will be taxable.

You can also get the funds transferred from one employer to another while you change jobs for better pay.

Are superannuation and PF the same?

Superannuation and PF are similar to some extent, but not same. In Superannuation fund, the employer contributes on your behalf for your retirement purpose, where as PF or Provident Fund is contributed by you and employer both, based on 12% of Basic Salary + DA component in your salary slip.

Watch below video to understand EPF (Employee Provident Fund) Interest Calculation:

EPF (Employee Provident Fund) Interest Calculation

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Income Tax Benefits

Superannuation fund allows you to claim deduction under Section 80C that can help you to save income tax with old tax regime. You get maximum of Rs. 1.5 Lacs as deduction under section 80C that can be used to save your income tax using superannuation fund.

However this deduction is not allowed with new tax regime.

Conclusion

While it is best to have Superannuation fund to earn interest and plan for your retirement, it is still optional.

You need not have to mandatorily use this fund in presence of your employee provident fund, PPF and other retirement funds including equities if you wish to take some risks via stock markets.

However get tax deduction with this fund and also the pension received is tax free, and these are some of the important benefits of superannuation fund.

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