25 December 2008
I have few queries regarding deduction of superannuation fund:
1.) who is laible to deduct superannuation fund from his salary
2.) What is the maximum limit of basic salary upto which superannuation is not deducted.
3.) Whether it is deductable under sec. 80C or not?
4.) If any recent amendment has come pertaining to this than what will be new provosions & its impact on old worker who was working before new changes & impact on new joiners after new amendments
14 November 2009
During the tenure of service, employees at higher income level would be required to pay heavy taxes on their bonus income. Superannuation Fund (SAF) enables the employers as well as employees to save income tax on such bonuses. The only restriction is that any excess over 27% of salary contributed by the employer to PF and SAF put together will not be allowed as deduction (Notification 10507 dated 16.1.98 w.r.e.f. 22.9.97).
The trustees of the fund shall enter into a scheme of insurance with any insurer of life right from the start. Alternatively, they shall accumulate the contributions and interest thereon. With this amount, they shall purchase an annuity from the insurance company at the time of retirement (or prior death) of the employee, at or after a specified age, or on his becoming incapacitated prior to such retirement.
At that juncture, the employee may be paid a commuted value not exceeding one-third of the corpus where the employee receives gratuity and half otherwise. This commuted amount is tax-free.
The freedom from income tax is not enjoyed if the employee resigns (not retires) or the employee retires before the superannuation age. The escape route in such cases is to purchase SAF-related annuity with the entire balance to the credit of SAF, without any commutation.
For grant of exemption from tax, rule 89(ii) of ITA provides that annuities shall be purchased from life insurance companies only. The employee has a wide choice between different annuities. Since this annuity has its nexus with salary of the employee, prior to his retirement, he can claim the standard deduction thereon.
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