The government of India has vide two separate notifications dated October 1, 2008 extended the Employee Provident Fund and Pension Scheme to all “international workers.” The term international worker means an Indian employee having worked or going to work in a foreign country with which India has entered into Social Security Agreement (SSA), who is eligible for social security benefits under programme of that country; and a non — Indian employee who holds other than an Indian passport and who works for an establishment in India to which the Provident Fund legislation applies.
The above definition does not clarify whether an Indian employee working in a country other than those covered by SSA will be called an “international worker” or not.
Prior to the notification, expatriates had no compulsion to contribute to the Employee Provident Fund / Pension Scheme. They usually continued to pay into their home country’s social security system so that their pension account doesn’t show a ‘break in service’. But with the current amendment in the Indian PF scheme, they will have to contribute to the EPF and will get the same treatment as Indian workers in their country.
The international workers are required to contribute 12 per cent of their salary to the Indian social security scheme irrespective of the contribution they make to such schemes in other countries. The employers are also required to match an equal amount i.e. 12 per cent of salary as their contribution to the scheme.
Indian employees having worked or going to work in a foreign country with which India has signed SSA will be allowed to avail their pension benefits right in India. Likewise, expatriates need not pay contributions to Indian retirement schemes.
The scheme appears to be a good and beneficial scheme for those persons who fall in the category of “ international workers” and go to work in those countries with which India has signed SSA.
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Other International workers, i.e. those employees going to foreign country and foreign employees coming to India from the countries with which India has not signed SSA, will suffer the following disadvantages.
They will be required to contribute to the social security system in their home country as well as the host country. The income tax benefit for the deduction under section 80C of the Income tax Act will not be available for the contribution made in the foreign social security scheme.
The scheme permits withdrawal on fulfillment of specified conditions and on reaching the age of retirement. This is particularly important because most of the employees who go to work abroad may return to their home country much before retirement.
Therefore, as far as Indians going to work abroad are concerned, they will contribute to PF etc. in the host country and in the absence of SSA, the benefit of withdrawal of amount is not available and as a result the amount will remain blocked in the foreign country.
As far as foreigners coming to India are concerned, they will contribute in the PF scheme in India and in the absence of SSA, the benefit of withdrawal of amount is not available and as a result the amount will remain blocked in India.
The above is important because India has so far signed SSA only with Belgium, Germany and France. The entire objective of such agreements is to ensure a level playing-field for mobile employees. These agreements aim to protect the interests of Indian as well as foreign employees by securing exemption from social security contributions in case of short-term assignments in the other country.
This certainly is a good gesture shown by Indian government, but far too premature till the SSAs are signed with more countries particularly those which are involved in deputing employees to India or employing Indians in their country.
The author is a Partner in SS Kothari Mehta & Co. hp.agrawal@sskmin.com