Like Provident Fund, Superannuation fund is also a scheme of retirement benefits for the employee. These are funds, usually established under trusts by an undertaking, for the purpose of providing annuities, etc., to the employees of the undertaking on their retirement at or after a specified age, or on their becoming incapacitated prior to such retirement, or for the widows, children or dependents of the employees in case of the any employee's earlier death. The trust invests the money contributed to the fund in the form and mode prescribed. Income earned on these investments shall be exempt, if any such fund is an Approved Superannuation Fund.
The tax treatment as regards the contribution to and payment from the fund is as under:
Deduction is available under section 80C from gross total income.
Contribution by the employer to the approved superannuation fund is exempt upto ₹1,50,000 per year per employee. If the contribution exceeds ₹1,50,000 the balance shall be taxable in the hands of the employee.
Interest on accumulated balance:
It is exempt from tax.
Payment from the fund:
Any payment from an approved superannuation fund shall be exempt if it is made:
(i) on the death of a beneficiary; or
(ii) to any employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement; or
(iii) by way of refund of contributions on the death of a beneficiary; or
(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon; or
(v) by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government. [Clause (v) inserted by the Finance Act, 2016, w.e.f. A.Y. 2017-18]
1. Where any contributions made by an employer, including interest thereon on contributions, if any, are paid to an employee during his life time in circumstances other than those referred to in section 10(13) given above, such amount shall be taxable in the hands of the employee.
2. Where any contribution by an employer (including the interest thereon, if any) are repaid to the employer, the amount so repaid shall be deemed, for the purpose of income-tax, to be the income of the employer of the previous year in which it is so repaid.
For amendment made by the Finance Act, 2020:
1. the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of section 80CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds ₹7,50,000 in a previous year;