Conceptual · Article 7.1.12

Group Superannuation Schemes.

Q: My employer offers both EPF and a superannuation scheme. Are they the same?

No. EPF is mandatory, jointly funded by employer and employee (12% of basic each), and gives a lump sum at retirement. A Group Superannuation Scheme is voluntary, primarily employer-funded, and is designed to convert the accumulated corpus into a monthly pension (annuity) for life. Both sit alongside each other as separate layers of retirement protection — EPF a savings corpus, superannuation a pension.

Q: I just resigned. What happens to my superannuation balance?

On resignation the corpus is not automatically available as a tax-free cash withdrawal. Your options are: (a) leave it with the insurer as a deferred/paid-up policy and take the annuity at the original retirement date — no immediate tax; (b) transfer to a new employer's approved superannuation fund — exempt under Section 10(13)(v); (c) transfer to NPS — also exempt; or (d) withdraw in cash, which is fully taxable as salary in the year of receipt. The absence of a tax-free cash exit on resignation, unlike EPF, is a key limitation for a mobile workforce.

Q: Is a Group Superannuation Scheme better than NPS for retirement planning today?

For new organisations without legacy Defined Benefit commitments, the NPS Corporate Model is usually more flexible and tax-efficient. The employer's NPS contribution under Section 80CCD(2) is deductible in the employee's hands under BOTH the old and new tax regimes — at up to 14% of salary from FY 2024-25 — and NPS is fully portable via a PRAN. A superannuation scheme's Section 80C benefit on employee contributions works only under the old regime. However, employers with legacy DB schemes must continue them for existing members, and some prefer the insurer-managed structure with bundled life cover and DB design flexibility.

How Employers Turn a Corpus Into a Pension for Life.

Published as on 22 July 2026

A Group Superannuation Scheme is a voluntary, employer-funded retirement benefit offered through IRDAI-regulated life insurers — a third layer that sits above the mandatory EPF and gratuity. The employer contributes to an Approved Superannuation Fund on behalf of employees; the insurer invests it, and at retirement the accumulated corpus is converted into an annuity — a monthly pension for life. Unlike EPF, which hands over a lump sum, superannuation is built to pay an income. Its two structures — Defined Benefit and Defined Contribution — split investment risk between employer and employee very differently. Employer contributions are deductible under Section 36(1)(iv), but the combined employer contribution across EPF, NPS and superannuation is capped at ₹7.5 lakh a year before it becomes a taxable perquisite. Increasingly, new employers reach for the NPS Corporate Model instead.

Employer-funded

Who Pays

DB or DC

Structure

1/3 tax-free

Commutation · 10(13)

₹7.5 lakh cap

Perquisite · Aggregate

Executive Summary · Page 2

Executive Summary · 6 Findings

Most working professionals meet two statutory retirement benefits — EPF and gratuity. A superannuation scheme is the quieter third: a voluntary pension an employer funds above and beyond what the law requires. Its purpose is not a savings lump sum but a pension income for life. For the employee this is largely an awareness topic — the money is the employer's, the design is the employer's choice, and the surprises usually come at resignation, when the tax-free exit that EPF offers is simply not there.

Covers what superannuation is and how the Approved Superannuation Fund works, the Defined Benefit versus Defined Contribution split, what happens at retirement (one-third tax-free commutation plus annuity) and at resignation (transfer or be taxed), the employer's Section 36(1)(iv) deduction and Rule 87 limits, the ₹7.5 lakh aggregate perquisite cap on employer contributions, how superannuation compares with the NPS Corporate Model, and five questions Indian professionals ask.

Key Findings

A voluntary pension layer above EPF and gratuity.

A Group Superannuation Scheme is an employer-sponsored retirement benefit run through an IRDAI-regulated life insurer. The employer is the master policyholder and makes contributions to an Approved Superannuation Fund — one recognised under Part B of the Fourth Schedule to the Income Tax Act, 1961. Unlike EPF's lump sum, it is built to deliver a pension.

Corpus in, annuity out — with a tax-free third.

The insurer invests contributions across approved asset classes; the corpus accumulates over the working life. At retirement, the employee may commute up to one-third of the corpus as a tax-free lump sum under Section 10(13) — with no monetary ceiling — and must use the remaining two-thirds to buy an annuity. That monthly pension is taxable as salary.

Defined Benefit vs Defined Contribution decides who bears the risk.

In a DB scheme the pension is a fixed formula of salary and service, and the employer bears the investment risk and any shortfall. In a DC scheme the employer's contribution is a fixed percentage of salary and the employee bears the market risk — the final pension depends on fund performance and annuity rates. DC now dominates new arrangements.

Resignation is the trap — no tax-free cash exit.

Section 10(13) exempts retirement, death, disability and fund transfers — not resignation. A resigning employee can leave the corpus with the insurer, transfer it to a new employer's approved fund or to NPS (both tax-exempt), or take cash — which is fully taxable as salary. There is no EPF-style tax-free withdrawal, a real limit for a mobile workforce.

Deductible for the employer — but a ₹7.5 lakh cap for the employee.

Employer contributions are deductible under Section 36(1)(iv), within Rule 87's 27%-of-salary combined limit with the provident fund. But the aggregate of the employer's EPF, NPS and superannuation contributions above ₹7.5 lakh a year is a taxable perquisite in the employee's hands, with accretion on the excess taxed too under Section 17(2)(viia).

Increasingly displaced by the NPS Corporate Model.

Post-2004 employers often prefer NPS. Its Section 80CCD(2) employer benefit works under BOTH tax regimes — at up to 14% of salary from FY 2024-25 — and it is fully portable. Superannuation's 80C benefit on employee contributions is old-regime only. Legacy DB obligations, bundled life cover and formula-based design are why some employers retain superannuation.

At A Glance

Feature	Position	Detail
Nature	Voluntary	Above EPF / gratuity
Regulator	IRDAI	Life insurer
Funded by	Employer	Employee optional
Structures	DB / DC	Risk differs
At retirement	1/3 tax-free	2/3 buys annuity
Annuity income	Taxable	As salary, TDS
Employer cap	₹7.5 lakh	EPF+NPS+super
Portability	Limited	Transfer to NPS

Exhibit 01: What Happens to the Corpus When You Leave

Exit event	Tax treatment	10(13)?
Retirement (1/3 lump)	Exempt, no cap	Yes
Death / disability	Fully exempt	Yes
Transfer to fund/NPS	Not taxable	Yes
Cash on resignation	Fully taxable	No

Illustrative of Section 10(13) treatment, FY 2025-26. The commuted one-third at retirement is exempt with no monetary ceiling, unlike gratuity's ₹20 lakh cap. Cash taken on resignation is the least efficient outcome — taxed as salary in full in the year of receipt.

The Opening · Page 3

The Opening

Superannuation simply means becoming too old for work. As an employee benefit, it is the pension an employer arranges for the day an employee reaches retirement age or leaves through permanent disability. It is not the same animal as the Employees' Provident Fund, which is mandatory and pays a lump sum, or gratuity, which rewards long service with a one-time payment. A Group Superannuation Scheme is a third, voluntary layer — and its defining feature is that it is designed to pay an income for the rest of a working life that has ended, not a cheque to be spent at once.

"EPF gives you a corpus and asks what you will do with it. Superannuation gives you a corpus and quietly turns most of it back into a salary — one that arrives every month after the salary stops, and is taxed exactly like the one that came before."
Pension, Not Payout

The mechanics. The employer signs a Group Superannuation agreement with a life insurer and is the master policyholder. The insurer sets up an Approved Superannuation Fund, invests the annual contributions across approved asset classes, and administers member accounts. At retirement the corpus buys an annuity from a life insurer; the employee may first commute up to one-third of it tax-free. Many products also bundle a modest life cover during the accumulation phase — the exact scope varies by insurer.

The FY 2025-26 context. Two things shape the picture today: the ₹7.5 lakh aggregate cap on employer contributions across EPF, NPS and superannuation, in force since FY 2020-21; and the rise of the NPS Corporate Model, whose Section 80CCD(2) benefit works in the new tax regime while superannuation's 80C benefit does not. New employers rarely start superannuation schemes now.

The Honest Boundary: A superannuation scheme is NOT a savings account you can dip into — it is locked toward a pension. It is NOT portable in cash on resignation without tax — unlike EPF. It is NOT something the employee usually controls — the design, the insurer and the contribution rate are the employer's. It IS a genuine additional retirement benefit, most valuable when you retire from the same employer and understand how to exit if you leave earlier.

Structure

Part I

What Superannuation Is, How the Fund Works & Where It Fits

Part II

Defined Benefit vs Defined Contribution & the Tax Rules

Part III

Retirement, Resignation, Portability & the NPS Comparison

Part IV

The Verdict: An Employer Benefit, Understood Properly

For the Employer

✓ Retention & senior-talent benefit

✓ Section 36(1)(iv) deduction

✓ DB design flexibility

✓ Bundled group life cover

For the Employee

✓ Extra pension above EPF

✓ 1/3 tax-free at retirement

✕ No tax-free cash on exit

✕ Limited fund choice

Part I

What Superannuation Is, How the Approved Fund Works, and Where It Fits

The third voluntary layer above mandatory EPF and gratuity; how an IRDAI insurer runs the Approved Superannuation Fund from contribution to annuity; and why its job is a lifelong pension income rather than a lump sum — the structural difference from every provident fund.

Part I · Page 4

Three Retirement Layers

Benefit	Basis	Payout
EPF	Mandatory	Lump sum
Gratuity	Mandatory	Lump sum
Superannuation	Voluntary	Pension

EPF (under the EPF & MP Act, 1952) and gratuity (under the Payment of Gratuity Act, 1972) are statutory. A superannuation scheme is the discretionary layer some employers add on top — and the only one of the three designed to convert savings into a monthly pension rather than a one-time payout.

How the Fund Works

Contribution to Annuity

The employer is master policyholder of an Approved Superannuation Fund — recognised by the Commissioner of Income Tax under Part B of the Fourth Schedule to the Income Tax Act. The insurer invests annual contributions across approved asset classes and maintains member accounts (individual in DC, pooled in DB). At retirement the corpus buys an annuity, after any one-third commutation.

The Insurer's Role

Function	What It Covers
Investment	Approved asset classes
Administration	Member / pooled accounts
Annuity	Pension purchase at exit
Life cover	Often bundled, varies

Beyond investing and administering the fund, many Group Superannuation products bundle a life insurance cover on member employees during accumulation — typically the return of fund value plus an insured benefit. The scope varies by product, so employers should confirm the exact cover when comparing insurers.

Where it fits: think of superannuation as the pension rung of an employee's retirement ladder — EPF and gratuity build lump sums for immediate needs, superannuation builds an income for the decades after work. It is most common in older, large organisations — PSUs, banks and established corporates — that set up funds decades ago. New employers rarely start one today.

Part II

Defined Benefit vs Defined Contribution, and How Everyone Is Taxed

Why a DB scheme pins the pension to a salary-and-service formula and hands the investment risk to the employer, while a DC scheme fixes the contribution and hands the risk to the employee; and how Section 36(1)(iv), Rule 87 and the ₹7.5 lakh perquisite cap divide the tax treatment.

Part II · Page 6

Two Structures

Defined Benefit — Employer Bears the Risk

The pension is predetermined by formula — say, 1% of average final salary per year of service. Thirty years of service at a ₹2,00,000 final monthly salary gives roughly ₹7,20,000 a year (₹60,000/month). The employer's contribution flexes with actuarial need and it must fund any shortfall. A single pooled account serves all members. Common in legacy PSUs and banks; rare in new schemes.

Defined Contribution — Employee Bears the Risk

The employer's annual contribution is fixed — a percentage of salary. A 10% contribution on ₹60,000 basic (₹72,000 a year) invested at 7% for 25 years grows to roughly ₹47.5 lakh. The final pension depends on fund performance and annuity rates at retirement. Each employee has an individual account. DC now dominates new arrangements and mirrors NPS in structure.

Employee's Own 80C — Old Regime Only

Where the scheme permits employee contributions alongside the employer's, they qualify for Section 80C (within the ₹1.5 lakh ceiling) — but only under the old tax regime. Under the new regime, the default from FY 2023-24, 80C is unavailable.

Taxation (FY 2025-26)

Employer Deduction — Section 36(1)(iv)

Contributions to an Approved Superannuation Fund are a deductible business expense under Section 36(1)(iv), within Rules 87 and 88. Rule 87 caps the combined superannuation-plus-provident contribution at 27% of salary; a firm putting 12% into EPF can add up to 15% to superannuation. The deduction is available only in the year the contribution is actually paid.

The ₹7.5 Lakh Aggregate Perquisite Cap

Since FY 2020-21, the aggregate of the employer's contributions to EPF, superannuation and NPS is capped at ₹7,50,000 per employee per year. Anything above is a taxable perquisite in the employee's hands at slab rate; under Section 17(2)(viia) the accretion on the excess is taxable each year too. Example: ₹5L EPF + ₹2L NPS + ₹2L super = ₹9L, so ₹1.5L is taxable.

The Two Retirement Options

Route	Lump sum	Annuity
Commute + annuity	1/3 tax-free	2/3 buys it
Full annuity	None	Whole corpus
Annuity income	Taxable	As salary

The one-third commutation is exempt under Section 10(13) with no monetary cap. The annuity is not taxed at purchase but the monthly pension is taxable as salary with TDS. Figures illustrative, FY 2025-26.

Part III

Retirement, Resignation, Portability, and the NPS Comparison

What the corpus does at retirement versus resignation; the four exit routes for a leaver and why only cash is fully taxed; and how a Group Superannuation Scheme stacks up against the NPS Corporate Model that has reshaped the landscape since 2004.

Part III · Page 8

On Resignation — Four Routes

Option	Tax
Leave with insurer (deferred)	Neutral
Transfer to new approved fund	Exempt
Transfer to NPS	Exempt
Cash withdrawal	Fully taxable

The Resignation Trap

Section 10(13) exempts retirement, death, disability and transfers to an approved fund or NPS — not resignation. Take the corpus in cash on quitting and the whole amount is salary income in that year. Unlike EPF, where withdrawals after five years are tax-free, there is no clean cash exit. For a mobile workforce, transfer or defer — do not cash out.

On Retirement

At retirement (by age, or approved early exit) the standard route is to commute up to one-third of the corpus tax-free and buy an annuity with the balance. The Section 10(13) exemption on that one-third carries no monetary ceiling — a contrast with gratuity's ₹20 lakh cap for private-sector employees.

Superannuation vs NPS (Corporate)

Factor	Superann.	NPS Tier I
Regulator	IRDAI	PFRDA
Type	DB or DC	DC only
Employer ded.	27% *	14% †
80CCD(2)	N/A	Both regimes
Tax-free lump	1/3	60%
Annuity min	2/3	40%
Portability	Limited	PRAN

* Section 36(1)(iv), combined with RPF, less RPF contribution. † Section 36(1)(iva), FY 2024-25 onwards. NPS 80CCD(2) (up to 14% of salary) is deductible in the employee's hands under both tax regimes; superannuation's employee 80C benefit is old-regime only.

Why employers still keep superannuation: legacy DB obligations must be honoured for existing members; some employers value the insurer-managed structure with bundled life cover; and DB's salary-and-service formula simply cannot be replicated under NPS, which is purely DC. For everyone else, NPS is usually the more flexible, portable and tax-efficient choice today.

Part IV

The Verdict

A pension you did not pay for — worth understanding before you leave.

Part IV: The Verdict · Page 10

30-Second Summary

A Group Superannuation Scheme is a voluntary, employer-funded retirement benefit run through an IRDAI-regulated life insurer. The employer contributes to an Approved Superannuation Fund; the corpus is invested and, at retirement, up to one-third is commuted tax-free under Section 10(13) while the rest buys an annuity taxed as salary. Defined Benefit schemes fix the pension and put the risk on the employer; Defined Contribution schemes fix the contribution and put the risk on the employee. It is a pension layer above EPF and gratuity — not a savings account.

Employer contributions are deductible under Section 36(1)(iv) within Rule 87's 27% limit, but the aggregate employer contribution to EPF, NPS and superannuation above ₹7.5 lakh a year is a taxable perquisite. The real trap is resignation: there is no tax-free cash exit, so transfer to a new approved fund or to NPS rather than cashing out. For most new employers the NPS Corporate Model — portable and deductible under both tax regimes via Section 80CCD(2) — is now the more flexible choice.

"The value of a superannuation scheme is real but easy to squander. Retire from the employer that runs it and you gain a lifelong pension with a tax-free third. Resign and take the cash, and the taxman treats the whole thing as this year's salary. The benefit is the same; only the exit changes the outcome."
The Final Orientation

The Bottom Line: Treat superannuation as a genuine addition to your retirement income, but know its rules before you move jobs. At retirement, commute the tax-free one-third and let the balance fund a pension. On resignation, never take cash — transfer the corpus to your new employer's approved fund or to NPS to keep it tax-neutral. Ask HR whether your scheme is DB or DC, what the contribution rate is, and whether the ₹7.5 lakh aggregate cap affects you as a senior employee. And weigh it against NPS, which is more portable and works in the new tax regime.

ADWIZR · July 2026

Decision Rules

Do This

✓ Commute the tax-free 1/3 at retirement

✓ Transfer, don't cash, on resignation

✓ Confirm DB vs DC with HR

✓ Check the ₹7.5 lakh cap if senior

Avoid This

✕ Cashing out on a job change

✕ Assuming it works like EPF

✕ Expecting a lump sum, not a pension

✕ Ignoring the annuity tax

Three Misconceptions

What Employees Get Wrong

(1) "It's like EPF — I can withdraw it tax-free." Cash on resignation is fully taxable; only retirement, death, disability and transfers are exempt. (2) "The whole corpus comes to me at retirement." Only one-third can be commuted; two-thirds must buy an annuity. (3) "The pension is tax-free." The monthly annuity is taxed as salary every year, with TDS.

vs NPS Corporate Model

Legacy vs Portable

Superannuation: insurer-run, DB or DC, limited portability, 80C old-regime only — kept mainly for legacy and DB design. NPS: PFRDA-run, DC only, fully portable, Section 80CCD(2) deductible in both regimes at up to 14%. Different tools; NPS suits most new arrangements.

1/3

Tax-free

Commutation · 10(13)

₹7.5L

Employer cap

EPF + NPS + super

DB / DC

Structure

Risk to employer / you

Investor FAQ

Questions Indian Professionals Ask

Seven questions, answered directly.

Investor FAQ · Page 12

Frequently Asked Questions

Q1 My employer offers both EPF and a superannuation scheme. Are they the same?

No — they are very different. EPF is mandatory, jointly funded by employer and employee (12% of basic each), and gives a lump sum at retirement. A superannuation scheme is voluntary, primarily employer-funded, and is designed to provide a monthly pension for life (an annuity) after retirement rather than a savings lump sum. Both sit alongside each other as separate layers of retirement protection.

Q2 I just resigned. What happens to my superannuation balance?

On resignation the corpus is not automatically transferable as tax-free cash. Your options are: (a) leave it with the insurer as a deferred annuity to be taken at retirement age — no immediate tax; (b) transfer it to your new employer's approved fund — tax-exempt; (c) transfer it to NPS — tax-exempt; or (d) take a cash withdrawal — fully taxable as salary. The absence of a tax-free cash exit on resignation, unlike EPF, is a key limitation for a mobile workforce.

Q3 My employer contributes ₹3 lakh to EPF and ₹6 lakh to the superannuation fund. How much is taxable?

The combined ₹9 lakh exceeds the ₹7.5 lakh aggregate ceiling that applies to the employer's contributions across EPF, NPS and superannuation. The excess ₹1.5 lakh is a taxable perquisite in your hands for FY 2025-26, added to salary and taxed at your slab rate. Under Section 17(2)(viia), the annual accretion (interest/dividend) on that excess is also taxable each subsequent year until withdrawn.

Q4 Can I take the entire corpus in cash at retirement instead of buying an annuity?

No. At retirement you can commute up to one-third of the corpus as a tax-free lump sum under Section 10(13); the remaining two-thirds must typically be used to purchase an annuity from a life insurer. Withdrawing more than the one-third in cash would make the excess taxable, and the two-thirds annuity requirement is a condition of the fund's approved status under the Income Tax Act. The monthly annuity is then taxable as salary each year.

Q5 Is a Group Superannuation Scheme better than NPS for retirement planning today?

For new organisations without legacy DB commitments, the NPS Corporate Model is usually more flexible and tax-efficient. The employer's NPS contribution under Section 80CCD(2) is deductible in your hands under both tax regimes — at up to 14% of salary from FY 2024-25 — and NPS is fully portable via a PRAN. Superannuation's 80C benefit on employee contributions works only under the old regime. But employers with legacy DB schemes must continue them, and some prefer the bundled life cover and DB design flexibility.

Q6 The monthly annuity I receive after retirement — is it taxable?

Yes. The monthly annuity from a superannuation fund is taxable as salary income in your hands each year after retirement, and tax is deducted at source by the annuity-paying insurer. Only the commuted lump sum — up to one-third of the corpus — is tax-free at retirement under Section 10(13). The ongoing pension payments are not exempt; plan your post-retirement cash flow on the after-tax pension, not the headline figure.

Q7 My employer is switching from superannuation to NPS. Is this a taxable event for me?

No. Transferring your accumulated superannuation corpus from an approved superannuation fund to NPS is specifically covered as an exempt event under Section 10(13)(v) of the Income Tax Act — the transfer itself is not taxable. Your future contributions and corpus then follow NPS rules. The switch typically benefits employees on the new tax regime, since NPS offers better tax efficiency under it through Section 80CCD(2).

Key Terms & Definitions

Group Superannuation Scheme

A voluntary, employer-sponsored retirement benefit run through an IRDAI-regulated life insurer. The employer contributes to a fund that is invested and, at retirement, converted into a pension (annuity) for the employee — a layer above the mandatory EPF and gratuity.

Approved Superannuation Fund

A superannuation fund recognised by the Commissioner of Income Tax under Part B of the Fourth Schedule to the Income Tax Act, 1961. Approval unlocks the tax benefits — the employer's Section 36(1)(iv) deduction and the employee's Section 10(13) exemptions.

Defined Benefit (DB)

A scheme where the pension is fixed by a formula linked to final salary and years of service. The employer's contribution flexes with actuarial need and it must fund any shortfall, so the employer bears the investment risk. Common in legacy PSUs and banks.

Defined Contribution (DC)

A scheme where the employer's annual contribution is fixed (a percentage of salary) and the employee receives whatever the accumulated fund becomes. The employee bears the investment risk; the pension depends on fund performance and annuity rates. Now the dominant model.

Commutation

Taking part of the accumulated corpus as a lump sum at retirement instead of as pension. Up to one-third can be commuted tax-free under Section 10(13), with no monetary ceiling; the remaining two-thirds must buy an annuity.

₹7.5 Lakh Perquisite Cap

Since FY 2020-21, the aggregate of an employer's contributions to EPF, superannuation and NPS above ₹7,50,000 per employee per year is a taxable perquisite, with accretion on the excess also taxed under Section 17(2)(viia).