The Supreme Court has ruled that members of the Employees' Provident Fund Organisation (EPFO) who are members of Employees' Pension Scheme can contribute more towards pension, provided they meet certain conditions. This has put to rest several years confusion arising from judgements given by various high courts that quashed an EPFO notification of 22 August 2014 in this regard.

 

The latest Supreme Court judgement - dated 4 November 2022 - has confirmed the following:

 

a) Any individual who joined the Employees' Provident Fund (EPF) Scheme on or after 1 September 2014, will not be eligible to join the Employees' Pension Scheme (EPS) if their basic salary exceeds Rs15,000 per month.

 

b) The maximum pensionable salary for the purposes of calculating the pension is still Rs15,000 per month as notified by the EPFO in 2014. This means that even if basic salary is higher than Rs15,000 the employer's contribution to pension will continue to be calculated on a basic salary of Rs15,000.

 

Sanjeev Kumar, Partner, Luthra & Luthra Law Offices India, says the verdict has finally laid to rest a burning issue regarding the amendment brought to the Employees' Pension Amendment of 2014. While upholding most of the EPFO's 2014 notification and overriding the views of the Delhi, Rajasthan and Kerala high courts, the apex court has offered a one-time relief to certain employees.

 

The judgement has offered a one-time relief to employees who were members of the EPS as on September 1, 2014 and had been making a higher contribution to the EPS - i.e., contribution on their actual salary if it was higher than Rs15,000 per month. These employees are now required to give a joint declaration, along with their employer, to the EPFO in order to continue making contributions on the higher amount. This declaration must be given within four months from the date of the judgement (4 November 2022), which means on or before March 4, 2023. For employees making this declaration, the

pension will be calculated on their higher salary (and not at the capped Rs15,000 per month). means on or before March 4, 2023. For employees making this declaration, the pension will be calculated on their higher salary (and not at the capped Rs15,000 per month).

 

The Supreme Court has struck down one of the amendments that required employees to make an additional contribution of 1.16% on salary exceeding Rs15,000 per month. It held that the power to require members to make these

additional contributions was not available under Section 6A of the EPF Act (under which the EPS was framed). However, it has kept this portion in abeyance for 6 months, so that the EPFO can understand how to obtain additional contributions to the pension fund in such a way that the fund is not depleted.

 

This would mean that for a period of 6 months, EPS members as on September 1, 2014 who opted for higher contributions at that time to their pension account will still be required to make additional contributions of 1.16% on the excess amount. For instance, if an employee who was a EPS member as on September 1, 2014, was earning Rs20,000 per month. In this instance, EPS contributions will be calculated as 8.33% of Rs15,000 + 1.16% of Rs5,000 (Rs20,000 - Rs15,000), as per the formula mentioned in the 2014 EPFO notification. Post the completion of 6 months, EPFO needs to clarify, how higher contributions will work on EPS account.

 

Under the EPF Act, both the employer and employee make equal contributions of 12% each of the employee's basic salary. The employee's full contribution is deposited in the EPF account. For eligible employees, the employer deposits 8.33% of the basic salary (which is capped at Rs1,5000 for this purpose) into the EPS account and the remaining in the EPF account of the employee.

 

Any individual employee who joined the EPF scheme after September 1, 2014 and became a member of the EPS (as basic salary was below Rs 15,000 at the time of joining) does not have an option of making higher contributions to the EPS. The relief is available to only individuals who were EPS members as on September 1, 2014.

 

The timing of the judgement is crucial. Given the high inflation, a section of employees would welcome this economic blessing with both hands. While the SC judgement has clarified certain points, many feel that the picture will only become fully clear after the EPFO issues a statement on how the judgement would be implemented.