 "epfo, provident fund, mutual fund, income, invest")
The Karnataka High Court has struck down a 15 years old amendment to law which allowed incorporation of foreign workers in the employees’ provident fund (EPF).
While calling it “unconstitutional and arbitrary”, the court struck down the special provisions for ‘international workers’ under Para 83 of the Employees’ Provident Funds Scheme, 1952 (Provident Fund Scheme) and Para 43A of the Employees’ Pension Scheme, 1995 (Pension Scheme).
The court found that the provisions that allowed international workers to contribute to the funds were “discriminatory” and violated Article 14 of the Indian Constitution, which guarantees equality before the law.
Justice KS Hemalekha said that while the Employees Provident Funds and Miscellaneous Provisions Act (EPF & MP Act) empowers the Central government to modify the schemes, the power has to be exercised only to meet the objectives of the enactment.
“The EPF & MP Act was enacted with a view to see that those in lower salary brackets get retirement benefits and by no stretch of imagination, could it be said that the employees who draw lakhs of rupees per month should be given the benefit under the enactment,” the judge said while referring to the foreign workers.
International workers are typically obligated to contribute to the provident fund based on their entire salaries unless they possess a certificate of coverage from their home country, provided there is a social security agreement between that country and India.
Preeti Sharma, partner, Tax and Regulatory Services, BDO India said, “The Provident Fund law provides a wage ceiling of Rs 15,000 to make mandatory contributions to PF for Indian nationals. Any contribution over and above this wage ceiling is optional. However, this ceiling is not applicable to foreign nationals working in India who are ineligible to receive benefits under a social security agreement (SSA) signed between India and their home country. Such foreign nationals are required to make PF contributions on their full “PF wages” received in India as well as in their home country for working in India. Over and above, the foreign nationals from non-SSA countries are not allowed to withdraw the balance in a PF account until they reach the age of retirement i.e. 58 years.”
Background
The Employees' Provident Funds and Miscellaneous Provisions Act of 1952 was enacted to ensure that employees in lower salary brackets receive retirement benefits. The act established the Employees' Provident Fund Scheme (EPF Scheme) and the Employees' Pension Scheme (EP Scheme) to provide a safety net for workers.
Later, the government expanded these schemes to include international workers, who were required to contribute a portion of their salaries to the funds. The provisions were introduced by the central government vide notification dated 1 October 2008 requiring international workers to contribute to the Provident Fund.
23 petitions were filed in court. And the petitioners argued that the provisions were discriminatory and violated Article 14 of the Indian Constitution. They raised concerns that international workers are included in the Provident Fund Scheme regardless of their salary, unlike domestic workers who are excluded if their monthly pay exceeds RS 15,000. Additionally, the petitioners highlighted that international workers work in India temporarily, and mandating contributions based on their entire global salary would cause irreparable injury.
The HC has observed that non-citizen employees working in India and employees who are citizens of India are two different classes, but when working in India, they are equals. Yet, they are treated differently, and hence, this violates Article 14 of the Constitution of India (right to equality).
The court had clubbed all the petitions.
Talking to Business Standard, Nehal Jain, Associate, SKV Law Offices discussed the impact of judgement on foreign workers
“Foreign workers in Karnataka may no longer be obligated to contribute to the Provident Fund scheme, which would result in immediate financial relief for them. This change could affect their retirement savings and social security benefits, as they may now have to explore alternative avenues for long-term financial security. Further, foreign workers may also experience changes in their employment contracts and compensation packages, depending on how employers adapt to the ruling,” Jain said.
The EPFO is ‘actively’ evaluating its options following the court judgement
The social security organisation said in a statement on Tuesday, “The EPFO acknowledges the recent judgement issued by the esteemed High Court of Karnataka. The EPFO is actively evaluating the course of action in response to this judgement.”
Abe Abraham, Partner at Cyril Amarchand Mangaldas, said “The expectation is that this order will be challenged as the implication of this order is far reaching. Since the court has held it to be unconstitutional, the effect is that these provisions would be ineffective from its inception. Consequently, expatriate employees would have had to be treated at par with Indian employees and ought not to have been made members of the provident fund mechanism if their salary was higher than the prescribed limits. The ramification of this order on contributions already made on their behalf would have to be assessed. This order will also have an impact on any ongoing proceedings initiated against employers for violating these provisions that now have been held to be unconstitutional.”
