After a Long Innings | Matter of Money

Background

If you are anything like me, a salaried employee, you would have not worried about the money that the organization compensates you. At best, you would look at your salary slip, maybe glance through the deductions and make sure the amount mentioned after the deduction and the amount deposited in your bank match. You do a couple of times, which assures you that there is a match, and then you do not even look to match. You are happy if at the end of the month there is an SMS that your salary has been credited and that is it.

Closer to your retirement or superannuation, especially if you are in an employment where there is no central/state government pension suddenly "money matters" especially because your monthly credits in terms of salary disappears and you need to plan or figure out how to try and fill that "monthly salary".

This is when the deductions in your salary slip (which was not cared for all these years) requires your attention. 

Read on, if you are someone like me!

Deductions which Pay you forward

While I cannot say this is applicable to everyone, this is based on my personally going through the process and must be true at the least for all people in Tata Consultancy Services Limited.

Aside of the Tax deduction, which is based on your income and the uniform professional tax (200 INR as of 2026) which show up prominently in your deduction section of your salary slip. There are a few deductions that actually are useful when you retire.

1. Provident Fund (PF): Which is 12% of your basic pay which is mandatorily deducted from your salary. Of this 8.33% (meaning 8.33% of 12% of the basic) is deposited into Employee Pension Scheme (EPS) operated by Employee Provident Fund Office (EPFO)
2. Voluntary Provident Fund (VPF): You have the choice of determining how much you wish to save for a later date. You could choose between 0 and 88%. If you choose 88% (the max) would mean that you are putting your entire basic salary into PF. Subsequently your take home salary, the money credited into your account will be lesser
3. National Pension Scheme (NPS): This is also a voluntary contribution which is of use when you retire.

Though not shown in the deduction (your Annual Compensation Letter will talk about)

1. Superannuation Fund: You can opt-in or opt-out. An opt-in means 15% of your basic is credited to your superannuation fund. Obviously, an opt-in means lesser take home salary when you are employed!
2. Gratuity: Usually based on policy which depends on the number of years that you have worked in the organization

When you turn 60 years

You retire at the end of the month in which you turn 60 years. If you turned 60 on August 1, 2026, then your last working day would be 31-Aug-2026.

When you retire

These are the things that you get

1. Your gratuity is paid immediately [see Compute #1]
2. If you have accumulated earned leaves (max of 56), you get paid immediately [see Compute #2]
3. You can have access to the money you have in your PF (the 12% of basic that was deducted + any VPF contribution you might have contributed)
4. You last month salary.

These are available as lumpsum almost immediately after your retirement. The idea is you could invest/use this money in a way to compensate for the salary that you were getting till you turned 60! 

The other deductions (EPS, SF, NPS) require you to buy an annuity which will enable you to get a fixed monthly income in lieu of your salary. Note that you can choose the annuity payout to be yearly, half-yearly, quarterly, and monthly.

1. Pension #1: EPS (the 8.33% of the 12% of your basic pay that was deposited with the EPFO) should allow you to get a steady pension (a small amount) almost immediately. The computation is based on the number of years of service. Approximately it is 15000 x (# of years of service) /70. As a quick compute if you worked for 35 years, you would get a monthly pension of 7500 for the rest of your life.
2. Pension #2: Superannuation Fund requires that you buy an annuity for at the least 2/3 of the total amount in you SF fund. You have the option of commuting (withdrawing) 1/3 of the SF. This 2/3 of SF is your source of pension.
3. Pension #3: The monies in your NPS account also require that you use at the least 40% of your funds to buy annuity from a list of annuity service providers. This 40% is another source of pension.

In brief you have (see the figure below)

Monthly source of income coming from (a) EPS directly from EPFO credited to your account, (b) monthly annuity from the 2/3 of your Superannuation Funds and (c) monthly annuity from the40% of your NPS Funds. 

Which might in all probability not match the salary that was getting credited in your account every month before you retired.

However, you have the (a) funds in your PF (between 12% to 100% of your basic salary saved over several years), (b) 1/3 of your SF (15% of basic salary if you opted to contribute), (c) 60% of your NPS, (d) Gratuity, and (e) Earned Leave encashment in your hand, which you can "make use of" so that you can generate a monthly payout. 

Both these are the substitute for the salary that stops getting credited into your bank when you retire!

At a Glance. Browns can give you monthly pension. While you have the cash (in blues) that you can invest/use to generate monthly income!

[ Compute #1] 

Gratuity (in TCS) is computed depending on the number of years of service.  Though the government mandates a maximum of 20 lakh INR. If you get more than 20 lakhs you pay tax on the excess.

• If service is less than 20 years:
• Gratuity = (15 ÷ 26) × Last Basic Pay × Years of Service
• If service is 20 years or more:
• Gratuity = (1) × Last Basic Pay × Years of Service

[ Compute #2]

Earned leave encashment computed as (Last Basic Pay ×Number of EL's ÷ 22) and anything above 25 lakh INR is taxed.

Feel free to write to me if you need any specific information.