You Are Not Entitled To SAF If You Resign

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: I am working for an MNC for the last four years. My company maintains a Superannuation Fund with LIC of India. They contribute 15 per cent of annual basic towards the fund. I am not sure how this fund works. Where do I get details about this fund. Also, can I withdraw the money accumulated when I resign from the company. If so, to what extent?
Govind Desikan
govinddesikan@yahoo.com

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 per cent of salary contributed by the employer to PF and SAF put together will not be allowed as deduction (Notification 10507 dt 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 on the commuted amount 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 of different annuities.

Since this annuity has its nexus with salary of the employee, prior to his retirement, he can claim the standard deduction thereon.

I have four PPF accounts. Mine, my wife’s, my daughter’s and my minor son’s. I plan to deposit Rs 70,000 in the first three a/cs during the current fiscal. I have my HUF too, filing IT returns regularly. From the last fiscal year, there were taxable income and there was a need to make deposit in PPF to take benefit of Sec 88 rebate.