 "EPFO")
The Karnataka High Court has struck down the incorporation of foreign workers in the employees' provident fund (PF), deeming it "unconstitutional and arbitrary".
The court said this 15 years after the extension of PF and pension coverage to foreign workers via a legislative amendment.
The ruling, expected to encounter opposition from the Employees Provident Fund Organisation (EPFO), will impact numerous expatriates who have either contributed to or are presently enrolled in the social security programme, according to a report in the Times of India (TOI).
The petitioners, representing education, logistics, real estate, and technology sectors, argued that the EPF provisions conflict with Article 14 of the Constitution, which addresses equality before the law.
The petitioners' grievance was that foreign workers are covered by the PF scheme regardless of their salary, whereas domestic workers earning a monthly salary surpassing the prescribed statutory limit (i.e., Rs 15,000 per month) are excluded. The petitioners said that international workers are in India for a finite duration, and mandating them to contribute based on their entire global salary would result in irreparable harm, the report said.
The report quoted Kuldip Kumar, partner at Mainstay Tax Advisors, as saying, "This ruling has much larger ramifications as the same is on the provisions introduced 16 years back. To name a few, should international workers stop contributing or those who contributed earlier and left the country can claim refunds even before attaining age of 58? Then, what will happen to income tax paid on such contributions and interest as for the past few years employer's contribution to the PF in excess of Rs 7.5 lakh and employee's own contribution to PF exceeding Rs 2.5 lakh and interest thereon on such excess contributions have been subjected to tax."
In a ruling issued on April 25, Justice K S Hemalekha concluded that the Employees' Provident Fund and Miscellaneous Provisions Act of 1952 was designed to secure retirement benefits primarily for employees in lower income brackets. She said it would be inaccurate to contend that employees with higher salaries should also be entitled to benefits under this legislation. Additionally, she noted that paragraph 83 of the EPF Act, pertaining to international workers, is akin to subordinate legislation and must not overstep the bounds set by the law, the report stated.
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The ruling stated that requiring an Indian employee working abroad to contribute Rs 15,000 towards PF, while mandating a foreign worker to contribute based on their entire salary, is deemed "discriminatory" and contravenes Article 14 of the Constitution.
The High Court dismissed the government's assertion of mandating contributions as a means of reciprocity to uphold social security agreements, finding it "unsustainable." Consequently, under these agreements, employees from foreign countries are either exempt from membership or allowed to withdraw their funds upon departing India, instead of having to wait until they turn 58.
