The Supreme Court in its judgment dated November 4, 2022, has upheld the validity of a 2014 amendment brought about by the central government barring some exceptions. The part of 2014 amendment, which was not impacted by this SC judgement, set a monthly basic salary ceiling of Rs 15,000 for an Employees’ Provident Fund (EPF) member to also be eligible to become a first-time member of the Employees’ Pension Scheme (EPS).
The amendment also provided certain employees an opportunity to make higher contributions towards their pension fund under the EPS. All this stir about a higher contribution towards EPS is only because a higher contribution due to higher basic salary makes a member eligible to receive higher pension under current pension calculation. After the SC judgment, employees have an opportunity till March 3, 2023, to make higher contributions under the EPS.
Who is eligible to apply for higher contributions under EPS?
Anshul Prakash, Partner-Employment Labour & Benefits, Khaitan & Co, says, “After the SC judgment, employees can broadly be put in two categories to be eligible to opt for higher contributions under the pension scheme. The first is of employees who were members of the EPS prior to September 1, 2014. For such employees, the manner of contributions towards EPS would be subject to them having exercised the option for higher contributions as per the erstwhile paragraph 11(3) of the EPS. This covers employees already making a contribution to EPS on basic salary exceeding the relevant limit but their request for higher pension was rejected by the EPF authorities. The second category is of employees who were members of the EPS as on September 1, 2014, and missed the opportunity to opt for a higher contribution to receive a higher pension after retirement. For these employees, the SC has now allowed a 4-month window (till March 3, 2023) to opt for higher pension contributions.”
According to the Supreme Court judgment, any individual who is a member of the EPS as on September 1, 2014, is eligible to apply for higher contributions. If you were actively making contributions to the EPS account until September 1, 2014, then you are very much eligible to apply for a higher pension contribution.
However, it may happen that as on September 1, 2014, you were not actively contributing to the EPS account. There may be several reasons for this, including:
a) you were unemployed at that particular point of time
b) you were working with an organisation that was not covered under the EPFO
c) you had already closed your EPF account, but you could not close your EPS account as the account was more than 10 years old. According to an EPS rule, if an account has been active for more than 10 years, the employee concerned is not eligible to receive the lump-sum payment but can get the pension from the age of 58.
The question arises are you eligible to opt for higher contributions if you are not an active member of the EPS as on September 1, 2014? Prakash says, “The Supreme Court judgment clarifies that as long as an employee was a member of the EPS on the said date, they can opt for higher contributions even if they had not opted for such higher contributions during the 6-month window that was provided to them effective September 1, 2014.”
The EPFO has issued a circular on December 29, 2022, clarifying the eligibility conditions to apply for higher pension contributions. The circular deals with employees who had opted to make contributions to the Employees’ Provident Fund (EPF) and EPS accounts beyond the prevalent wage ceiling – it was Rs 5,000 before October 8, 2001; and Rs 6,500 till August 31, 2014.
According to the circular, employees whose contribution to the EPF scheme was higher than the wage ceiling of Rs 6,500 or Rs 5,000, as the case may be, are eligible for higher pension contributions. Such employees must have submitted a joint declaration with their employer to opt for higher pension contributions and their request would have been rejected by the EPF authorities. They can now apply for higher contribution within the given window till March 3, 2023, to be eligible for higher pension.
Who is not eligible to apply for higher pension contributions?
The Employees’ Provident Fund Organisation (EPFO), via the 2014 amendment to the EPS rules, had restricted an employee with a basic salary exceeding Rs 15,000 from joining the EPS. Hence, if an employee at the time of joining the EPF scheme had a basic salary exceeding Rs 15,000 per month, then they cannot join the EPS.
Further, the EPFO circular had clarified that certain employees will not be eligible to opt for higher pension contributions. According to the circular, if an employee retired before September 1, 2014, and did not exercise the option to opt for higher pension contributions, such an employee will not be eligible to opt for higher pension contributions now.
Prakash says, “The EPFO circular, however, is silent about individuals who were in fact members of the EPS as on September 1, 2014 but did not opt for higher contributions during the 6-month window brought about by the EPS amendment, despite the apex court allowing such individuals as well to opt for higher contributions.”