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Superannuation Definition | Meaning | Fund | Tax | Calculator 2022

Superannuation Definition | Meaning | Fund | Tax | Calculator 2022:- Superannuation is a retirement benefit and potentially a good way for an employee to aim their financial security. Employers also offer other retirement savings schemes such as provident funds, gratuity, or National Pension System (NPS). The term ‘superannuation’ means becoming retired. Wherein retirement may be because of age or a physical condition. Employers offer a superannuation benefit to their employees as a retirement scheme.

Superannuation Definition Meaning 2022

It is money that people pay regularly into a special fund so that when they retire from their job they will receive money regularly as a pension.

The term ‘superannuation’ means becoming retired. Wherein retirement may be because of age or a physical disability. Employers offer a benefit to their employees as a retirement scheme.

How Does Superannuation Work?

  • The employer offers this as a retention benefit wherein a fixed percentage is contributed towards it.
  • Calculation of the amount of contribution is done on the sum of an employees’ basic pay and dearness allowance. A percentage of the sum up to a maximum of 15% is the employer’s contribution to the scheme.
  • Employees also contribute the same percentage to the scheme as an investment for their future. Your Cost To Company (CTC) includes the benefits and contributions made by the employer
  • Employers contribute to the group retirement fund on behalf of employees towards the group policy held by him. There are a variety of options for managing this, including opening up their own trust or investing in approved ones.
  • Insurance companies also provide superannuation. schemes like LIC’s New Group Superannuation Cash Accumulation Plan and ICICI’s Endowment Plans etc.

Superannuation Funds Example

The most common form of superannuation contributions is mandated employer superannuation guarantee (SG) contributions. Other examples of superannuation contributions are salary sacrifice contribution, non-concessional contributions, and personal concessional contributions

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There are two types of Benefits

  • Defined Benefits Plan: In this type of superannuation plan, you get fixed benefits irrespective of the contribution to the plan. The benefit amount is calculated in advance using a pre-existing formula. The calculation is based on various factors such as the years of service and salary. Your age of reaping the benefits of the scheme is also specified during the initiation of the scheme. It involves higher complexity while the risk of generating scheme benefits lies with the employer. Upon retirement, you receive the pre-decided amount at regular intervals.

  • Defined Contribution Plans: Unlike the defined benefits plan, the defined contribution plan has a fixed pre-determined contribution amount. The benefits you get are directly correlated with your contribution and are driven by market forces. Though more manageable, the risk of this type of benefit lies with the employee. You cannot accurately predict the amount you will receive upon retirement.

There are a few differences

  1. The key difference is that the benefit is in the form of monthly pension payments (generally). There may be a commutation option on these depending on the company policy.
  2. They are not required by law, whereas, gratuity is mandatory as per PG Act, 1972

Superannuation Tax Fund

It is a retirement fund offered by your employer. The employer contributes 15% of your basic salary to this fund. It is not mandatory for you as an employee to contribute to the fund, but you may do so if you wish.

Though the monthly amount may be a small one, it creates a corpus large enough to help sustain your needs after retirement. Employers generally take group superannuation policies with insurers such as LIC, which maintains both the group account and your individual account. The principal amount, interest, and profits made through investments in funds (by the insurer) are deposited in your individual account. The rate of interest is usually similar to provident fund rates.

When you retire, you can withdraw 25% of this superannuation fund amount, and that amount is exempted from taxation. The remaining 75% is invested in an annuity fund in your name, to ensure regular returns during your retirement period. You can choose to receive annuity returns either monthly, quarterly, half-yearly or annually. This amount that you get periodically, will be considered as an income and hence is taxable.


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