In: Finance
Can the ER fund the money purchase plan with EE salary reductions?
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?
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When the PF amount is withdrawn before five years of continuous service, it is be taxable in the hands of the individual as if the fund was not recognised from the start of the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.