 "EPFO, PF, Provident fund, savings")
The Employees’ Provident Fund Organisation (EPFO) has issued an updated set of FAQs on the implementation of higher pension following the Supreme Court ruling in November 2022.The process for the employees opting for higher pensions closed on July 11, 2023. The EPFO, however, extended it till December 31 for employers.
The updated FAQs provides more clarity on the process, such as documents required from employees and employers or how to make a joint request for higher pensions.
FAQs clarify that higher pension application will not be rejected even where such permission is not obtained by the employee. The Regional Provident Fund Commissioner is required to obtain required details from the employer to substantiate that the contributions were made on higher salary (full basic salary exceeding the ceiling limit) in the past so that it can be confirmed that the employee is eligible for higher pension option.
FAQs clarify that higher pension application will not be rejected even where such permission is not obtained by the employee. The Regional Provident Fund Commissioner is required to obtain required details from the employer to substantiate that the contributions were made on higher salary (full basic salary exceeding the ceiling limit) in the past so that it can be confirmed that the employee is eligible for higher pension option.
In case of filing an online application for joint option validation, if the documentary proofs are not submitted under para 26 (6) of the EPF scheme, 1952, the Regional Provident Fund Commissioner (RPFC) cannot reject the application for the lack of documents if it is otherwise eligible. RPFC would instead obtain the necessary documents from the employer to ascertain the contributions for higher pension and eligibility.
The computation of the pensionable salary depends on the pension commencement date. If the pension commencement date is before September 1, 2014, the pension will be calculated based on the 12 months’ average salary during the contributory 12 months preceding the exit date from the pension fund. In case the pension commencement date is on or after September 1, 2014, the pensionable salary will be calculated based on the average monthly pay during 60 months of contributory service preceding the date of exit from the scheme.
" FAQs also clarify that an employee who is eligible for monthly pension after 1 Sep 2014, last 5 years’ average basic salary will be considered for determining pensionable salary for calculation of monthly pension payout.The formula for calculation of monthly pension is: (Pensionable salary X Pensionable service)/70," said Puneet Gupta, Partner, EY India
Giving example for those members whose date of commencement of pension is prior to 01.09.2014, the EPFO reiterated the pensionable salary will be calculated based on the average monthly pay drawn during contributory period of service in the span of 12 months preceding the date of exit from the membership of the pension fund. For those whose date of commencement of pension is on or after 01.09.2014, the pensionable salary will be calculated based on the average monthly pay drawn during the contributory period of 60 months preceding the exit from the membership of the pension fund. Arrears of pension will be paid to the pensioners in line with the existing income tax rules for tax deducted at source (TDS).
“Arrears of pension will be paid to the pensioners in accordance with the existing process to comply with income tax provision relating to tax deducted at source”, the EPFO said in response to a query on whether pension arrears will be adjusted against the demand for higher contributions. This implies that the provident fund department can either adjust the arrears against the demand of contributions on higher wages or may make it a two-step process of demand payment by the individual and separate payout of pension arrears after TDS is applied.
More From This Section
" FAQs clarifies that for an individual eligible for higher monthly pension payout from the EPFO for the past period as arrears – such arrears of pension will be paid to the individual in accordance with the existing process. This will assist EPFO to comply with TDS requirement on such arrears pension payout. Such arrears will not be adjusted against dues if any from the individual for reallocation of funds required from the Provident Fund Scheme to the Pension Scheme where the individual has already claimed lump-sum withdrawal from the Provident Funds Scheme or funds in the Provident Fund Scheme are insufficient," said Sonu Iyer, Partner, EY India
For someone retiring in the future, the pension will be calculated depending on the provisions existing at the time of the pension commencement date.
