Supreme Court’s Ruling on the Constitutionality of Employees’ Pension (Amendment) Scheme (EPS Amendment), 2014

Introduction

The Supreme Court of India in a much awaited decision in the matter of Employees’ Provident Fund Organization (EPFO) and Another vs. Sunil Kumar and Others, Special Leave Petition (C) Nos. 8658­-8659 of 2019) dated 04^th, November 2022 has hereby declared The Employees’ Pension (Amendment) Scheme, 2014 (EPS Amendment) as constitutional, with certain caveats as enumerated below. The decision was made in light of the appeals the EPFO had filed against the rulings by the Kerala High Court, Rajasthan High Court, and Delhi High Court, all of which had ruled that the EPS Amendment was unconstitutional and had to be set aside.

Vide Notification No. GSR 609(E) dated 22^nd August 2014, effective from 1^st September 2014, the changes are as follows:

• In the earlier version of EPS-1995, the maximum pensionable salary cap was ₹6,500. However, members whose salaries exceeded this cap could opt, along with their employers, to contribute up to 8.33% of their actual salaries.
• The amendments enhanced the cap from ₹6,500 to ₹15,000. But the amendments said only employees, who were existing EPS members as on September 1^st, 2014, could continue to contribute to the pension fund in accordance with their actual PF wages. They were given a window of six months to opt for the new pension regime subject to 1.16% to be contributed by the employee.
• Amendment to the Pension Scheme brought by notification no. GSR 609E brought shall apply to employees of exempted establishments as employees of regular establishments. Transfer of Funds from the exempted establishments shall be in the manner that we have already directed.

Highlights of the Judgment

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 PF wages 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), 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 PF wages of Rs 20,000 per month. In this instance, EPS contributions will be calculated as 8.33% of Rs 20,000 + 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 (PF wages). 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. 15,000 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.

Observations

• The Supreme Court’s ruling in the R.C. Gupta case is genuine, and it contains instructions that must be fulfilled within eight weeks. In other words, larger pensions will be paid to Pension Scheme participants who applied for them in accordance with the R.C. Gupta case, and the EPFO Authorities must finish the necessary paperwork within 8 weeks.
•  In the event that the PF Authorities disobey the R.C. Gupta The Contempt Application/Petitions that were dismissed in the ruling from November 4, 2014, will be reinstated in the Gupta case. The R.C.’s instructions must be followed by the PF Authorities. Gupta’s opinion.
• Members of the Pension Scheme who have made contributions exceeding to Rs.15,000 to be made additional contribution of 1.16% on the exceeding salary (Above 15,000) is an ULTRA VIRES as per the provisions of EPF Act. SC directed the EPFO to alter its system and create the additional contribution from a legal source within the meaning of the Act, including increasing the rate of employer contrition, this aspect of the ruling has, however, been temporarily put on hold for a period of six months.
• Time limit for exercising the option has been extended by four months effective from the date of judgment.
• The foregoing verdict does not apply to pension fund members who joined on or after September 1, 2014 because they do not have the right to a greater pension.
• The PF department may issue detailed guidelines for implementation of the judgment of the Supreme Court.

Source: TeamLease HRtech, Digitalising Employee Experience

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