Perquisite – Superannuation Fund
Introduction
Superannuation is a retirement benefit wherein the employer contributes annually to a group superannuation policy to provide pension payments to employees upon retirement. The fund earns interest similar to provident fund rates. Employees can transfer their accumulated superannuation balance to a new employer’s approved fund or withdraw it, subject to tax provisions.
Contribution Limits and Taxability
Employers may contribute up to 27% of the employee’s basic salary towards recognized retirement funds, including contribution to provident fund. For example, if 12% is contributed to PF, the maximum superannuation contribution is 15%. Contributions by the employer exceeding an aggregate limit of Rs. 7,50,000 per year to recognized provident fund, national pension scheme (NPS), and approved superannuation fund are taxable as perquisites in the hands of the employee. Interest attributable to such excess contributions is also taxable as a perquisite.
Taxation in the Employee’s Hands
- Employee’s contributionsto the superannuation fund are deductible under Section 80C, subject to the overall Rs. 1,50,000 limit.
- Employer’s contributionswithin the Rs. 7,50,000 aggregate limit are not taxable. Contributions beyond this limit attract tax as a perquisite. Lump-sum employer contributions to group superannuation schemes where individual benefits are not separately identifiable are not taxable as perquisites.
- Interest accruedon the superannuation fund balance is exempt unless attributable to excess employer contributions above Rs. 7,50,000, in which case it is taxable as a perquisite.
- Payments from the fundare exempt under Section 10(13) if made due to the employee’s death, commutation of pension after specified retirement age, incapacity, or transfer to NPS. Withdrawals without annuity purchase on retirement or resignation are taxable. Purchase of an annuity from the withdrawn amount exempts the payment and ensures pension continuity.
Taxation in the Employer’s Hands
- Employer contributions to an approved superannuation fund are allowed as a business expenditure under Section 36(1)(iv), subject to limits.
- Income earned by trustees on behalf of the approved fund is exempt under Section 10(25)(iii).
- Employers must deduct tax at the average rate applicable to the employee on payments from the fund during the employee’s lifetime, unless such payments are exempt under Section 10(13).