Here’s an example to understand this. Say an individual’s wages are Rs 20,000 per month. The EPFO’s notified wage ceiling limit is Rs 15,000. If an individual opts for the higher pension from EPS, the individual will be asked to make an additional contribution of 1.16% on Rs 5,000 (Rs 20,000 minus Rs 15,000). This is the additional contribution to the EPS account, over and above the employer’s contribution of 8.33% on Rs 1520,000 (actual salary).
Secondly, the EPFO is yet to clarify the implementation of the Kerala High Court order dated April 12, 2023. The high court has asked the EPFO not to insist on proofs and other documents and make it difficult for eligible EPF members to apply for the higher pension. Prior to the court order, the EPFO insisted that employees provide proof that permission from EPF Commissioner was taken to make a additional contribution to the Employees’ Provident Fund (EPF) organisation above the wage ceiling, if the wage exceeded the notified ceiling. It was noted that on a practical level, such a permission was not taken by the employers to make the contribution. EPFO was aware of this and did not insist on such permission. They also issued a circular to do away with such permission which was later withdrawn.
Further, the EPFO is yet to issue the circular clarifying computation of pension. There is no clarity regarding how dues will be calculated. Also, there is no clarity on if an individual who has opted the scheme can opt out if the additional dues are higher than expected.
With the May deadline fast approaching and the EPFO yet to clarify on these issues, ET Wealth reached out to experts to understand what employees can do to submit the joint declaration form on the Member Sewa portal before the window closes.
Sanket Jain, Partner, Pioneer Legal: The Kerala High Court has directed the authority concerned to provide for adequate provisions in EPFO’s online facility to enable the employees/pensioners to furnish the options in tune with the directions of the Supreme Court for the time being. If such appropriate modifications are not made to the online facility, feasible alternative arrangements, including the permission to submit hard copies of the options, shall be made. The Kerala HC’s interim order had directed the EPFO authorities to avail all the facilities to all employees/pensioners on or before April 23, 2023 (within 10 days from the date of the order). However, the EPFO has still not explicitly mentioned any mechanism or made any revisions for online or physical submissions. Although the circular issued by the EPFO on April 23, 2023, does not talk about the physical submission of copies to the field offices, it does clarify the process to be followed in case of mismatch or error in provided by the employees/employers. If there is a mismatch, the employer or employer will be notified about it and they will get a month to rectify it.The requirement of the members to contribute at the rate of 1.16% of their salary to the extent such salary exceeds Rs 15,000 a month as an additional contribution under the amended scheme was held to be ultra vires by the Supreme Court. However, the SC suspended the operation of this part of its order for six months. This was done to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from some other legitimate source within the scope of the EPF Act. It could include enhancing the rate of contribution of the employers. The SC did not speculate on what steps the authorities will take as it would be for the legislature or the framers of the scheme to make necessary amendments. For six months or till an amendment is made, the employees’ contribution shall act as a stop-gap measure. The said sum shall be adjustable on the basis of alteration to the scheme that may be made. Till date, there is no clarity provided on what this adjustment will be.
Vaibhav Bhardwaj, Partner, IndusLaw: The proof of permission from the EPFO is not mandatory, and the EPFO’s decision will not be based on the scrutiny of this application form provided there is ample proof that pension contribution was being made by the member on higher wages, i.e., wages more than the statutory limit. One can provide proof of the old EPF statement, salary statement of employee reflecting EPF contribution, etc, in case a joint application form is not available.
Further, according to the directions of the Supreme Court, the EPFO has to issue guidelines on the replacement mechanism by May 3, 2023. It is expected that the EPFO will come up with the methodology and the replacement mechanism. Members should get adequate time to implement these guidelines. It would be interesting to see how the EPFO asks the members to contribute towards any deficit in the provident fund account.
Wasim Beg, Partner, Luthra and Luthra Law Offices India: The Kerala High Court directed the EPFO to modify its online system to allow employees/pensioners to comply with the directives of the Supreme Court for opting for higher pension without having to provide copies of the option under paragraph 26(6) of the Employees Provident Fund Scheme, 1952. After the judgment, the EPFO is bound to make the requisite changes. In case it does not, employees can initiate contempt proceedings against the EPFO.
The Supreme Court judgment declared the requirement of 1.16% additional contribution as ultra vires from May 3, 2023, in order to allow the authorities to make adjustments in the scheme so that the additional contribution can be generated from some other legitimate source within the scope of the EPF Act, which could include enhancing the rate of contribution of the employers. Till May 3, the employees’ contribution shall be as stop-gap measure. Once a provision has been declared as ultra vires, even its partial application cannot be allowed. The court should have mentioned a detailed alternative while pronouncing the judgment. Till that is not finalised, the additional compensation requirement cannot be functional as it has been declared as ultra vires.