Tax treatment of Pension corpus

This query is : Resolved

P.DHAR (Querist)
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01 April 2010 Some of our top managers are going to retire and it has been decided by the Board to pay them a pension of Rs. 40,000 p.m. We intend to purchase annuity from LIC with the return of the Corpus. We have got two options:
i) Pension payable for life to our Top Executive with return of the Corpus back to the Company. There is no trust set up by the Company, since pension payment is not statutory for us but only as an additional benefit to our top Executives. The Company can subsequently use this Corpus for purchase of pension for other Executives and also for payment of reduced pension to the spouse of the deceased executive.
ii) Pension payable for life to our top Executive and return of the Corpus to the spouse of our Executive.

The purchase price for the payment of pension with return of Corpus for our Executive on regular retirement at age 60 is coming to about Rs. 50 Lacs.

Can any one guide me whether

a) The purchase price or the fund ( Rs. 50 Lacs)paid by the Company to LIC for the payment of this pension to our retired executive will be treated as Business Expense for the Company? If not what will be the tax treatment for this amount?
b) After the death of the Executive whether the return of the Corpus will be taxable or not under both the situations, i.e i)when the corpus is returned back to Company for purchase of pension to the spouse of deceased executive as also for purchase of pension for other retiring Executives? and ii) When the Corpus is given to the spouse or legal heirs of the deceased Executive. They may or may not purchase annuity for this amount.

CA SANJAY MUKHERJEE

CA SANJAY MUKHERJEE (Expert)
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01 April 2010 To get the tax benefit you should have an approved superannuation fund.

The provisions relating to the approved Superannuation Scheme are set out in Part 'B' of the Fourth Scheme of the Income-Tax Act, 1961 and Part XIII of the Income Tax Rules , 1962. The income tax concession will be available only if the scheme is approved by the CIT.

The annual contribution is treated as a deductible business expense in term of Section 36(1) (iv) of the I.T. Act.

In terms of a Notification issued by the Central Board of Direct Taxes .80% of the contribution (s) towards the past service liability are treated as deductible business expenses spread over in the subsequent years of payment.

http://www.licindia.in/group_schemes_004.htm