Nowadays, almost all employers avail their employees with a lot of retirement benefits like gratuity, provident fund, pension system, etc. Superannuation Scheme is also one such retirement benefit that is offered to the employees.
However, this benefit is often ignored by the employees and many employees have no idea as to what superannuation scheme means and how it works. That is why, it is quite important to understand the superannuation scheme and its benefits, so that the employees can enjoy better financial goals and security.
The exact meaning of the word ‘superannuation’ is retirement due to age or infirmity. A superannuation scheme is a benefit that is fruitful at the time of retirement and is offered to the working employees by the employer. Superannuation scheme is more like a pension program devised by a company for the benefit of its employees. This is also known as a company pension plan.
On the basis of investment and benefits of the Superannuation scheme, the benefits are of two types as listed below:
In the superannuation scheme, the contribution is made by the employer on behalf of the employees. These superannuation scheme benefit funds are either managed by their own trusts or they open a superannuation fund with an insurance company that has been approved or they buy products from insurance companies like the ICICI’s Endowment plans for Superannuation.
The employer has to deposit/ contribute a fixed percentage of the basic pay and the dearness allowance of the employees and the percentage for contribution for a particular category remains the same. Superannuation scheme comprises the Cost to Company(CTC), even though the contributions are made by an employer.
However, if an employee wants to contribute any sort of additional amount to the superannuation scheme fund, then he can do so if the benefit plan is a defined contribution plan. Once you retire, you are permitted to withdraw 1/3rd of the total benefit that is accumulated and this benefit can also be converted into a regular pension plan.
Moreover, in the case of an employee leaving the job, he gets the option to transfer his superannuation scheme amount to his new employer. But, if the new employer does not use a superannuation scheme then the employee can either decide to withdraw the amount or he may retain the benefit amount in the fund till he gets retired.
The government provides income tax benefits to all the retirement benefit schemes. The Superannuation Scheme also has some benefits over income tax for both the employee and the employer. But these income tax benefits are valid only if the superannuation fund is approved. The approval can be acquired from the Income Tax Commissioner according to the rules which are set in the Part B of the IT Act’s Fourth schedule. Let us understand these tax benefits for both the employee and the employer.
If an employer contributes to any superannuation scheme fund that is approved by the income tax department, then the contribution is a business expense that is deductible. Also, any income made by a trust of a superannuation scheme fund that is self-managed is also free from any sort of taxes.