The Supreme
Court cited Proviso to Para 11(3) of the Pension Scheme and clarified that to
avail higher pension benefit, an employee will be allowed to allocate higher
amount of the employer’s Provident Fund contribution to the Pension Scheme and
not be restricted on the prevailing salary ceiling.
The Supreme Court further ruled that there can be no cut-off date for an employer and an employee to avail the option of making pension contribution on higher salary beyond the prevailing salary ceiling. In case such an option is exercised by the employee, the Employees’ Provident Fund Organisation (EPFO) can divert the funds from the Provident Fund Scheme to the Pension Scheme and provide higher pension to the employees.
Following the Supreme Court ruling, the EPFO issued a circular on 23 March 2017 stating that on receipt of a joint request from an employer and an employee, the employee who has contributed toward Provident Fund on higher salary exceeding the salary ceiling can divert 8.33% of the said salary to the Pension Scheme along with interest declared under the Provident Fund Scheme. Such employee would be eligible for higher pension benefit under the Pension Scheme as calculated on higher salary.
With effect from 1 September 2014, Proviso to Para 11(3) was deleted and instead Para 11(4) was introduced in the Pension Scheme.
In our view, the Supreme Court ruling may have limited applicability in relation to an employee who satisfies the following criteria:
a. The employee had left employment prior to 1 September 2014 and is not employed in an establishment covered under the Provident Fund law; and
b. When employed, the employer’s share of Provident Fund contribution was on higher salary but contribution allocated to the Pension Scheme was on the prevailing salary ceiling.
As per another EPFO circular, this does not apply to an employer maintaining a Private Provident Fund Trust. However, this circular has since been challenged in various High Courts
The Supreme Court further ruled that there can be no cut-off date for an employer and an employee to avail the option of making pension contribution on higher salary beyond the prevailing salary ceiling. In case such an option is exercised by the employee, the Employees’ Provident Fund Organisation (EPFO) can divert the funds from the Provident Fund Scheme to the Pension Scheme and provide higher pension to the employees.
Following the Supreme Court ruling, the EPFO issued a circular on 23 March 2017 stating that on receipt of a joint request from an employer and an employee, the employee who has contributed toward Provident Fund on higher salary exceeding the salary ceiling can divert 8.33% of the said salary to the Pension Scheme along with interest declared under the Provident Fund Scheme. Such employee would be eligible for higher pension benefit under the Pension Scheme as calculated on higher salary.
With effect from 1 September 2014, Proviso to Para 11(3) was deleted and instead Para 11(4) was introduced in the Pension Scheme.
In our view, the Supreme Court ruling may have limited applicability in relation to an employee who satisfies the following criteria:
a. The employee had left employment prior to 1 September 2014 and is not employed in an establishment covered under the Provident Fund law; and
b. When employed, the employer’s share of Provident Fund contribution was on higher salary but contribution allocated to the Pension Scheme was on the prevailing salary ceiling.
As per another EPFO circular, this does not apply to an employer maintaining a Private Provident Fund Trust. However, this circular has since been challenged in various High Courts
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