The latest Supreme Court judgment – dated November 4, 2022 – has confirmed the following:
a) Any individual who joined the Employees’ Provident Fund (EPF) Scheme on or after September 1, 2014, will not be eligible to join the Employees’ Pension Scheme (EPS) if their basic salary exceeds Rs 15,000 per month.
b) The maximum pensionable salary for the purposes of calculating the pension is still Rs 15,000 per month as notified by the EPFO in 2014. This means that even if basic salary is higher than Rs 15,000 the employer’s contribution to pension will continue to be calculated on a basic salary of Rs 15,000.
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 judgment 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 Rs 15,000 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 judgment (November 4, 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 Rs 15,000 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 Rs 15,000 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 Rs 20,000 per month. In this instance, EPS contributions will be calculated as 8.33% of Rs 15,000 + 1.16% of Rs 5,000 (Rs 20,000 – Rs 15,000), 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 Rs 1,5000 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.
What experts are saying on the SC judgment
Sowmya Kumar, Partner at IndusLaw, says, “While the Supreme Court has provided the much needed clarity on a few fundamental aspects of the functioning of the EPS, it has also pointed out that further nitty-gritty has to be ironed out. We expect that the EPFO will issue detailed operational guidelines and FAQs based on this judgment, especially on the impact on exempted establishments and the manner in which the additional contributions can be made. One thing is clear, though, and is cause for some celebration: employees who were EPS members as on September 1, 2014, and in respect of whom contributions were made on a higher sum, will be entitled to more pension.”
Sanjeev Kumar, Partner, Luthra & Luthra Law Offices India, says the Supreme Court has carved out various parameters wherein some groups of employees are set to gain. Employees of the exempted establishments would now stand on the same footing as that of employees in regular establishments. “Further, the Supreme Court, while exercising its special powers under Article 142 of the Constitution, has said even those employees who did not exercise their options under the amendment earlier, but were entitled to do so, can now apply for the option under the scheme within 4 months. While this comes as a huge relief for various employees, keeping in mind the sudden economic burden on the government, further time has been granted to make appropriate adjustments to the scheme.”
The timing of the judgment is crucial, he says. Given the high inflation, a section of employees would welcome this economic blessing with both hands, Kumar adds.
While the SC judgement has clarified certain points, the picture will only become fully clear after the EPFO issues a statement on how the judgement would be implemented.