What is Superannuation fund in India?- In Comparison to NPS

superannuation fund benefit in india

Superannuation fund benefit is one of the benefits that employer provides to its employees. Since this does not require any contribution from the employee so generally this gets ignored by them. But it is important to understand its working and taxation to make the best use of it.

I was of the view that now days with so many different options available with the employer to give benefit to employees, this superannuation benefit may not be opted by them since unlike Employee provident fund and Gratuity, this benefit is not mandatory for them. But No I was wrong, as recently I have seen few salary slips of my new clients showing superannuation fund as part of their CTC. So this is still in existence.

Generally, Superannuation is a part of CTC (Cost to a company), and thus it reduces the take home salary of the employee. Though in some cases, the employer makes it optional for the employee and if the employee does not want this benefit, then s/he can ask for this amount in Monthly salary. But this option has to be exercised only at the start of the Job. This is what I was advised by my Branch manager when I joined ICICI Bank back in 2003.

Does that mean that you should also do the same? Well, there is no harm in that, but only after understanding the product features. Because my and your requirements, risk profile, Investment behavior are different and thus Superannuation fund may suit you. Moreover, it may also be possible that your employer may not give you the option to opt out of it, as was the case with one of my client.

Let’s first understand what a superannuation benefit is and how it works in Indian scenario

What is Superannuation fund benefit in India?

The word superannuation is normally used as a synonym to Retirement. Superannuation benefit is a Retirement benefit provided by the employer to their employees.

In simple terms Superannuation benefit is the pension plan bought by the employer for its employees. Employer contributes a certain amount to a Group Superannuation policy bought for this purpose and at the time of Retirement, the employee starts getting pension depending on the plan variant which employer has opted for at the time of contribution, and also the option that employee may have to exercise at the time of Retirement. (Also Read: How to manage the post retirement income flow – bucketing strategy)

Superannuation benefit comes in 2 variants, where the employer decides as to what it wants employees to receive a pension as. It may be a defined benefit plan or a defined contribution plan.

In the case of defined benefit, a formula is worked out generally based on the last salary drawn by the employee, which results in a fixed amount which employee keeps on getting every month as pension/annuity, this amount may or may not keep increasing with Inflation. Thus in defined benefit plan, Insurance company and the employer have to work out how much return should be generated and how much contribution to be made to reach that defined level.

The second variant which most of the employers opt for is the defined contribution plan. In this case Maximum of 15% of basic salary is contributed by the employer into the superannuation fund. Employees also have the option to contribute voluntarily to this fund. At the time of retirement whatever the corpus of the fund, that can be used to start with the pension/annuity amount.

Superannuation fund benefit – Tax rules

First thing first, since the amount which Employer is contributing is something you are not receiving your monthly Salary, so it is not taxable in your hands. But there is one clause, where if the employer contribution exceeds Rs 1 lakh in a financial year, then the extra amount will be taxed as Perquisite in the employee’s salary.

Employee contribution will come under section 80C and will fall within the overall Limit of Rs 1.50 lakh.

At the time of Retirement, the employee may withdraw 1/3rd of the corpus as commuted tax-free money and for the rest 2/3rd s/he has to compulsorily buy an annuity from the Insurer.

If an employee leaves the organization before attaining superannuation/Retirement, then he may withdraw the complete money in the lump sum, which is completely taxable and will be added to his total Income in the year of superannuation withdrawal and to is taxed accordingly. (Read: EPF withdrawal rules)

Superannuation fund or New pension Scheme (NPS) – which is better?

If you know how NPS works, then you will find much more similarity in Superannuation and NPS, at least from contribution and distribution perspective.   However, NPS comes under section 80CCD, where you can claim tax benefit of Rs 50000 more, which is over and above section 80C.

There are 2 main differences between superannuation benefit and new pension scheme. One is that unlike superannuation, in NPS you cannot withdraw the account balance completely when you leave your job. You can only make partial withdrawal as per the rules laid down on NPS withdrawal and have to buy pension compulsorily or continue the account until retirement.

The other main difference is which depends on the type of superannuation scheme your employer has opted for. If it is ULIP then the corpus will generate market linked investments and if it is endowment then it will generate the conservatively fixed return. Whereas NPs is a market linked product.

Recently Government has come up with a notification which has allowed individual employees to move their corpus from Superannuation to New pension scheme. This would be a one-time transfer and will not attract any tax liability on the transferor.


As far as superannuation fund working is concerned, there is nothing to be commented on, as it has a set structure. However, when you compare it with other options available then definitely you look at the pros and cons of the product.

On the face of it to me, NPS looks like a more attractive product as compared to superannuation. As it has potential to generate much better returns with working more or less similar to a superannuation scheme, one would be better off in NPS. Had this been a comparison between EPF and NPS then I would have preferred EPF over NPS due to the taxable structure in NPS.

So one can look at shifting Superannuation fund to NPS but only after understanding its working and figuring out its suitability with one’s future requirements.

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  1. the employee has withdrawn15/- lakh rupees from total accumulated balance of rs.84′- the fund authority has deducted the tds on the same @6 % on average rate rules applicable for approved super annuation fund. after filing the tds return the tds authority raised a query as a short deduction. why? where and how we have to show the total withdrawal amount of rs.15/- and tds deducted threre on @6% on average rate base. employee is already senior person.

    • As far as my understanding goes if superannuation is withdrawn before retirement, then the complete withdrawn amount is taxable and will be added in the income to calculate tax accordingly as per the slabs. It should be Shown under Income from other sources in ITR.
      If withdrawn post-retirement, then 1/3rd to be tax-free and rest 2/3rd should be used to buy an annuity

  2. I have 3 superanuation funds and getting pesion from all three quaterly,
    can we merge them? if yes, then what is the process?
    Or can we transfer those to NPS tier 1?
    Please suggest
    my age is 51 yrs

    • Please clarify your query. But as far as ESOP and ESPP are concerned, ESOP is a perquisite perquisite provided by various companies to its employees. It is a stock option provided by the employer under which the employees have the right to BUY a stock in future at a pre-decided price agreed at the time of giving those stock options. So in future whatever is the market price does not matter, employees always have an option to buy it at the price which was agreed upon.

      ESPP is also a benefit given by employer to its employees to purchase the stock of the company at a discounted price. In an ESPP plan, an employee has to contribute a part of this salary in ESPP plan each month. An employee can choose how much of his salary he wants to contribute by himself. It can range from 1% to 15% of his salary. All the money which he contributes gets accumulated for few months and then in one go, stocks are purchased for him at some discounted price. On what price the discount will be given depends on your company EPSS plan. However in general its the minimum of the prices in the start of the EPSS plan and at the end of the ESPP plan.

  3. I am married and having a kid. I am working and earn around 8.5 LPA. As of now, I am supporting my family with my earnings. But not sure really to how many years i would be in this job. I want to save tax, which one would you prefer me, NPS or superannuation? is there any better option than this? I have currently invested in a LIC insurance, Mutual Fund and VPF.

    • We understand your situation but not sure that you want to save tax or save for the future. Since your situation is quite peculiar, a holistic view of your finances would be required before doing any investments. In other words, a proper financial planning is required. We can offer you this service. Please go through our services from the link below:
      For you we can offer some discount.

  4. Thanks for post. I’ve following two queries in terms of tax benefit between Superannuation and NPS: –

    I’m already using my complete 80C limit (1.5L) for tax benefit through LIC and VPF.

    Query 1. If I’m already using my complete 80C limit (1.5L), want to know if there is any tax benefit above 80C limit for chosing superannuation?

    Query 2. Is it better to opt NPS (instead of superannuation) which gives tax benefit under 80CCD (50K over and above 80C limit of 1.5L)?

    • Employee Contribution comes under the 80C limit and is tax free up to Rs. 1 lakh, beyond that it is taxable.

      Now, it depends upon your employer to shift to NPS then only you are eligible for NPS tax benefits.

  5. I am retired and drawn 1/3 already from lic. I dont want to leave 2/3 for my son, instead want to draw it now and lead a comfortable living. Can I draw it now?

    • As far as we know, you may withdraw 1/3rd of the corpus as commuted tax-free money and for the rest 2/3rd
      has to be compulsorily used buy an annuity. However, there are some recent changes in the rules, please confirm the same from your employer or the accounts department.
      Would love to hear back from you, for the benefit of other readers.


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