Superannuation is a retirement planning scheme in which employers and employees contribute to building a fund that provides income for the employee post his retirement. It is a voluntary scheme that can help you build a corpus for your laters years.
Oct 04 - 9 min. read
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The hustle and bustle of daily life often leads us to procrastinate our retirement planning, which is critical to ensure a stress-free and financially stable life post-retirement. Thankfully, schemes like Superannuation help you plan a secure and comfortable retirement.
Superannuation refers to a scheme offered by employers to act as a financial safety net once you retire. Simply put, it is a pension plan in which both employee and employer make contributions to build a fund that can be used by the employee post his retirement. An important thing to note about the superannuation scheme is that it is tax-exempt.
This blog will discuss superannuation meaning, superannuation tax * benefits, and whether or not it is covered under Income Tax Act Section 80C deductions. Read on!
A superannuation scheme refers to a pension scheme granted by a company or employer to its employees for their welfare. Also known as a company pension plan, superannuation involves accumulating funds in employees’ accounts until their retirement without any tax implementation. Once they retire, they can withdraw this fund to ensure a secure financial future.
In simple terms, superannuation is a retirement pension scheme that helps you plan your future while also enjoying tax exemptions.
In this pension plan, the employer contributes a maximum of 15% of your base salary to the superannuation fund. You may or may not contribute to this fund; it is up to you. If you choose to contribute, the amount will be deducted from your basic salary.
When you retire, you can withdraw 25% of this fund, which is exempted from taxation. Further, the remaining 75% will be invested in an annuity fund to ensure a smooth and regular flow of income post your retirement.
Although the monthly contribution towards the superannuation scheme is small, it helps in building a substantial balance enough to support you financially after retirement.
Moreover, if you switch jobs, you have the option to transfer your superannuation fund to your new employer. In case your new company does not grant a superannuation scheme, you can withdraw the accumulated account or leave it as it is until your retirement.
Based on investments and gains, the superannuation types are as follows:
Annuity refers to a financial product offering periodic payments to the employee after retirement for their contribution to the superannuation scheme.
Below are the types of annuity options available with superannuation plans:
Now that you understand the meaning of the superannuation retirement and superannuation types, let us move on to the superannuation tax benefit list for better understanding.
Before moving further, note that the superannuation scheme offers benefits for both employers and employees. However, these benefits are subject to approval from the Commissioner of Income Tax under the rules laid in Part B of the Fourth Schedule of the Income Tax Act.
Superannuation is not merely a pension scheme; it is an important financial concept that allows you to plan a secure and stress-free retirement. It ensures your financial stability after completing the job and will provide a smooth flow of regular income to cover your expenses in the absence of a job.
Not just that, the superannuation scheme also lets you optimise your tax savings as this fund is tax-free up to a certain limit under IT Act Section 80C.
We have covered the detailed superannuation fund meaning in this blog, along with its eligibility and taxability. We hope it helps.
