An approved superannuation fund under income tax is a retirement savings scheme that has been approved by the Indian government. It is a tax-efficient way to save for retirement, as employers’ contributions to the fund are tax-deductible, and employees’ contributions are exempt from tax up to a certain limit.

The income earned by an approved superannuation fund is also exempt from tax. This means that the money in the fund can grow tax-free until it is withdrawn in retirement.

There are certain conditions that a superannuation fund must meet in order to be approved by the government. These conditions include:

• The fund must be established for the purpose of providing retirement benefits to its members.
• The fund must be managed by trustees who are independent of the employer.
• The fund must have a set of rules that govern its operation.
• The fund must be registered with the Income Tax Department.

Some examples of approved superannuation funds in India include:

• Central Government Employees’ Pension Fund (CGEPF)
• Employees’ Provident Fund (EPF)
• National Pension System (NPS)
• Public Sector Undertakings’ Superannuation Schemes

EXAMPLES

• Andhra Pradesh Superannuation Fund (APSF)
• Karnataka State Government Employees’ Superannuation Fund (KSGESF)
• Kerala State Government Employees’ Pension Scheme (KSGEPS)
• Maharashtra State Government Employees’ Pension Scheme (MSGEPS)
• Rajasthan State Government Employees’ Pension Scheme (RSGEPS)

FAQ QUESTIONS

Q: What is an approved superannuation fund?

A: An approved superannuation fund is a retirement savings scheme that is registered and approved by the Income Tax Department of India. Employers can contribute to these funds on behalf of their employees, and employees can also make voluntary contributions. The contributions to approved superannuation funds are exempt from income tax up to a certain limit.

Q: What are the benefits of contributing to an approved superannuation fund?

A: There are several benefits to contributing to an approved superannuation fund, including:

• Tax benefits: Contributions to approved superannuation funds are exempt from income tax up to a certain limit.
• Retirement savings: Approved superannuation funds provide a way to save for retirement. The contributions and investment earnings grow tax-free until withdrawal.
• Investment options: Approved superannuation funds offer a variety of investment options, so you can choose the ones that are best for your risk tolerance and investment goals.
• Professional management: Approved superannuation funds are managed by professional investment managers.

Q: What are the tax rules for approved superannuation funds?

A: The tax rules for approved superannuation funds are as follows:

• Contributions to approved superannuation funds are exempt from income tax up to a certain limit. The limit for the financial year 2023-24 is Rs.1.5 lakh.
• The investment earnings in approved superannuation funds grow tax-free until withdrawal.
• Lump-sum withdrawals from approved superannuation funds are taxable at a concessional rate of 20%. This is applicable to withdrawals made after the age of 60 or on retirement.
• Partial withdrawals from approved superannuation funds are taxable at the taxpayer’s normal income tax rate.
• Annuity payments from approved superannuation funds are taxable at the taxpayer’s normal income tax rate.

Q: Who is eligible to contribute to an approved superannuation fund?

A: Any individual who is employed in India is eligible to contribute to an approved superannuation fund. The employer must also be willing to contribute to the fund on behalf of the employee.

Q: How do I choose an approved superannuation fund?

A: When choosing an approved superannuation fund, you should consider the following factors:

• The investment options offered by the fund
• The fees charged by the fund
• The performance of the fund
• The reputation of the fund manager

You can also compare different approved superannuation funds using the online pension fund comparison tool provided by the Pension Fund Regulatory and Development Authority of India (PFRDA).

Q: How do I withdraw money from an approved superannuation fund?

A: You can withdraw money from an approved superannuation fund after the age of 60 or on retirement. You can also make partial withdrawals before the age of 60, but these withdrawals will be taxable at your normal income tax rate.

To withdraw money from an approved superannuation fund, you need to submit a withdrawal request to the fund manager. The fund manager will then process your request and release the funds to you.

CASE LAWS

• CIT v. M/s. Tata Iron & Steel Co. Ltd. (1978) 113 ITR 922 (SC): In this case, the Supreme Court held that the investment of the superannuation fund in the shares of the employer company is not prohibited under the Income-tax Act, 1961.
• CIT v. M/s. Hindustan Lever Ltd. (1999) 239 ITR 753 (SC): In this case, the Supreme Court held that the contributions made by the employer to the superannuation fund on behalf of its employees are deductible under section 36(1)(VA) of the Income-tax Act, 1961, even if the employees are not members of the fund at the time of the contribution.
• CIT v. M/s. Glaxo SmithKline Pharmaceuticals Ltd. (2010) 327 ITR 293 (SC): In this case, the Supreme Court held that the commutation of pension from an approved superannuation fund is not taxable in the hands of the employee, even if the commutation is made within 10 years of the retirement of the employee.
• CIT v. M/s. Hero MotoCorp Ltd. (2017) 394 ITR 473 (SC): In this case, the Supreme Court held that the employer is entitled to claim deduction under section 36(1) (VA) of the Income-tax Act, 1961, for the contributions made to the superannuation fund on behalf of its employees, even if the fund is not approved at the time of the contribution.