EPFO: I work at a private firm with a monthly salary of Rs 50,000. Can I opt out of EPF and contribute to NPS?

I work at a private company with a monthly salary of Rs 50,000. I asked my employer to deduct the NPS contribution from my salary as part of my retirement benefit. However, my employer deducts from my salary for EPF contributions. Is there a way to opt out of EPF contributions? What do you think I should do?

Name withheld

Reply by Pooja Ramchandni, Partner, Shardul Amarchand Mangaldas & Co.

The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) applies to notified establishments engaging 20 or more employees. As per the EPF Act, an employer must contribute towards EPF in respect of all employees unless the employee is an “excluded employee” or the employer has sought an exemption. Both employer and employees are required to contribute towards the provident fund.

An excluded employee is one whose monthly wages exceed Rs 15,000. Such an employee should either never have been a member of the provident fund established under the Employees’ Provident Funds Scheme, 1952 (EPF Scheme), or if such person has been a member, he/she should have withdrawn all accumulations thereby culminating the membership.

A member of the provident fund established under the EPF Act can withdraw accumulations only in accordance with the conditions set out in the EPF Scheme.

Therefore, an employee whose salary is Rs 50,000 should if they are a member of the provident fund established under the EPF Scheme. If yes, such an employee must contribute mandatorily towards the provident fund. That said, there is no prohibition of contribution towards NPS as an additional retirement benefit.

Thus, if the EPF Act is applicable, an employer must contribute towards provident funds for eligible employees. In such a case, both employer and employee will need to contribute.

Reply by Radhika Viswanathan from Deloitte Haskins & Sells LLP

EPF contributions are mandatory in certain instances. If the employer is a covered establishment and the employee’s monthly pay is less than Rs 15,000, then the individual would be required to contribute to PF compulsorily. However, if the monthly pay is more than Rs 15,000 per month, the employee would have an option to not contribute to PF provided he/she is not a member of PF.

On the other hand, National Pension System (NPS) is mandatory only for central government employees joining services on or after January 1, 2004.  In the case of other citizens, they can subscribe to it voluntarily under the all-citizens model.

It may be added that both schemes are independent of each other and not mutually exclusive. Hence, an employee can opt to contribute to both schemes and reap the benefits available to them if they wish.

(Views expressed by the investment expert are his/her own)