How are payments from & contributions to an approved superannuation fund taxed

We receive a lot of queries about how superannuation fund is taxed – when payments are received from it or where contributions may have been made. Let’s understand below.

What is an approved superannuation fund?

An approved superannuation fund means a fund which is approved and continues to be approved by the Commissioner in accordance with the rules set out in Part B of the Fourth Schedule of the income tax act. For simplification this is the schedule of the income tax act where provident funds, superannuations funds have been given approval basis the conditions met by them. You should be able to find out from the charter of your fund whether it is approved or you can also ask your employer for details.

 

How are contributions taxed?

Employee’s contribution – Employee’s contribution to an approved superannuation fund is eligible for deduction under section 80C.

Employer’s contribution – Employer’s contribution towards an approved superannuation fund is exempt from tax upto Rs 1lakh per annum. If the employer makes any contribution beyond Rs 1lakh such excess shall be taxable for the employer.

 

How is interest earned on the fund taxed?

Interest earned from an approved superannuation fund is exempt from tax.

 

How are payments received from the fund taxed?

Payments received from an approved superannuation fund are fully taxable when the employee leaves the organization except where he/she leaves due to retirement, death or incapacitation.

  • Note: If such payment received includes contributions made before 1st April 1962, an exemption is allowed for contributions made before 1st April 1962.
  • Such payment is included under the head income from other sources and taxed as per the slabs applicable to the individual.

Exemption in certain cases – As per section 10(13) of the Income tax act, payment received from a superannuation fund are exempt from tax when made –

  • On Death of the employee – payment to the legal heirs or By way of refund of contribution on death of the beneficiary is exempt from tax
  • On Retirement of the employee – payment made to an employee towards an annuity on retirement or at or after the age specified (as per the fund) is exempt from tax
  • On Incapacitation of the employee – payment made when the employee is incapacitated (injured/harmed) before retirement is exempt from tax

 

If you have any questions related to taxation of superannuation, do write to us support@cleartax.in

 

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