Question

In: Finance

Can the ER fund the money purchase plan with EE salary reductions?

Can the ER fund the money purchase plan with EE salary reductions?

Solutions

Expert Solution

NO, ER IS EMPLOYEE FUND IT IS NOT COMPANY MONEY ANYMORE , IT NEEDS TO BE RETURNED TO EMPLOYEE ON RETIREMENT

Basics of EPF

Employee Provident Fund (EPF) is an integral part of earning for all working professional in India. Most of the employees(government and private) save a small fraction of their salary through EPF, which is automatically debited from their salary and credited to their EPF accounts by their employer. The Employees’ Provident Fund (EPF) managed by the Employees’ Provident Fund Organisation (EPFO) ensures that an individual puts away enough for retirement every month. With 12% of his basic salary and a matching contribution by his employer, a subscriber to the EPF should be able to accumulate a decent amount by the time he retires

WHAT IS EE AND ER?

  • EE Amt: Employee Contribution i.e. your total contribution in the EPF account. The sum total of PF amount deducted monthly from your salary.
  • ER Amt: Employer Contribution i.e your company contribution. The sum total of PF amount monthly contributed into your EPF account by your employer.

You can see that EE(Employee Contribution) is more than ER(Employer Contribution). Because Employer’s contribution is split into two halves, the Pension fund(EPS) and Provident Fund(PF). SMS does not show the information about Pension fund but EPF passbook does.

When the PF amount is withdrawn before five years of continuous service, it is be taxable in the hands of the individual as if the fund was not recognised from the start of the contributions.Provident Fund would be treated as an Unrecognised Fund from the beginning.

THEREFORE ER(EMPLOYER CONTRIBUTION) CANNOT FUND THE MONEY PURCHASE PLAN WITH EE(EMPLOYEE CONTRIBUTION) SALARY DEDUCTION SINCE EE IS CONTRIBUTED BY EMPLOYEE ITSELF AND EMPLOYER HAS NO TIME TO COUNT THIS AS ER DEDUCTION AND REAPING THE TAXATION BENEFIT.


Related Solutions

Explain 4 Monetary Transmission Mechanisms (Channels of money) and explain how reductions in money impact the...
Explain 4 Monetary Transmission Mechanisms (Channels of money) and explain how reductions in money impact the components of aggregate demand, AD and output
How does a profit sharing plan differ from a money purchase plan? Under what circumstances, and...
How does a profit sharing plan differ from a money purchase plan? Under what circumstances, and from whose point of view, would a profit sharing plan be better than a money purchase plan?
Which of the following statements best describes the advantages of a qualified money-purchase pension plan? (A)...
Which of the following statements best describes the advantages of a qualified money-purchase pension plan? (A) It is designed to adequately protect against inflation. (B) Older employees can be more readily provided with adequate retirement benefits. (C) Tax sheltering is enhanced because an annuity can be purchased for each employee. (D) Costs are predictable, and the design is simple and understandable.
Summarize pretax salary reductions. Discuss how these items affect your withheld income tax and tax expense...
Summarize pretax salary reductions. Discuss how these items affect your withheld income tax and tax expense paid by employers. If you have not considered the pretax salary reductions, would you consider it for the future tax year? Explain why or why not. If you use pretax salary reductions, how have they worked out for you, will you use them again next year? Justify your reasons.
What impact would the retirement of a highly compensated employee have on a money-purchase pension plan...
What impact would the retirement of a highly compensated employee have on a money-purchase pension plan assuming that the replacement employee is offered a significantly lower wage? Group of answer choices No effect Decrease employer contributions Increase employer contributions
The Obama administration's Clean Power Plan called for: a. reductions in carbon dioxide emissions from newly...
The Obama administration's Clean Power Plan called for: a. reductions in carbon dioxide emissions from newly constructed power plants only. b. reductions in carbon dioxide emissions from existing power plants. c. uniform reductions in every state, regardless of differences across states. d. closing all coal-fired power plants by the year 2030. Which of the following is a TRUE statement? a. Control variables used in cross-sectional regression analysis typically remove all bias. b. Attrition of volunteers in randomized trials rarely occurs....
Clayton​ Moore's Money Fund.  Clayton Moore is the manager of an international money market fund managed...
Clayton​ Moore's Money Fund.  Clayton Moore is the manager of an international money market fund managed out of London. Unlike many money funds that guarantee their investors a near​ risk-free investment with variable interest​ earnings, Clayton​ Moore's fund is a very aggressive fund that searches out relatively​ high-interest earnings around the​ globe, but at some risk. The fund is​ pound-denominated. Clayton is currently evaluating a rather interesting opportunity in Malaysia. Since the Asian Crisis of​ 1997, the Malaysian government enforced...
1. Money-purchase plans are what type of voluntary benefit? cash-balance plan defined-contribution pan defined benefit plan...
1. Money-purchase plans are what type of voluntary benefit? cash-balance plan defined-contribution pan defined benefit plan profit-sharing plan 2. Before Greg’s doctor’s appointment, the receptionist asks for his insurance card and asks him to sign a form that explains what the provider will do to protect him from discrimination. What law does this form outline? Family Medical Leave Act Federal Insurance Contributions Act Health Insurance Portability and Accountability Act Employee Benefits Security Administration 3. Much like forms of direct pay,...
You are contributing money to an investment account so that you can purchase a car in...
You are contributing money to an investment account so that you can purchase a car in five years. You plan to contribute six payments with $2,000 each year. The first payment will be made today (t = 0), and the final payment will be made five years from now (t = 5). If you earn 8% in your investment account, how much will you have in the account six years from now (t= 6)? Note: This is an annuity due...
Describe the following types of funds: Bond fund Money market mutual fund Index fund Sector fund
Describe the following types of funds: Bond fund Money market mutual fund Index fund Sector fund
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT