Expatriate employees who are engaged to work in India are normally regular employees of some foreign company. They usually make contributions to the social security scheme in their country of origin. The employees come to India generally for short duration after which they return to their home country and resume their regular employment there. Therefore, such employees do not want to discontinue their social security arrangements in their home country.
There was some confusion in India regarding the membership of foreign employees to Indian PF Scheme. However, the Government of India vide Notifications No. GSR 705(E) and GSR 706(E) dated 01.10.2008 has extended the Employee Provident Fund and Pension Scheme to all ‘International Workers’. The term ‘International Worker’ includes an employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the Provident Fund Act applies. Thus, the Expatriate Employee will normally fall in the category of ‘International Worker’, and the provisions of Indian PF Act will apply to him.
Since the EPF contribution is calculated on the total salary earned by the employee, whether received in India or outside India, the expatriate will be required to contribute 12% (8.33% to PF and 3.67% to Pension Scheme) of their base pay. Similar amount will be contributed by the employer. In this manner the PF contribution in India become quite substantial. Therefore, if an employee has to contribute to social security scheme both in India and in his home country, a sizable portion of his salary will be locked up in social security scheme.
It may be mentioned here that as on 01.04.2011, three social security agreements in respect of Belgium, Germany and Switzerland have been made effective from 01.09.2009, 01.10.2009 and 29.01.2011 respectively. Apart from the above, SSAs have already been signed with France, the Netherlands, Czech Republic, Denmark, Hungary, Norway, Luxembourg, and Republic of Korea, but not yet made effective. Negotiations are at various stages with Canada, Quebec, Sweden, Australia, USA and Austria. Government level talks are on with many other countries where sizable numbers of Indian Workers are employed.
In this manner except employees from Belgium, Germany and Switzerland, all other expatriates shall fall in the category of ‘International Worker’ and shall be required to contribute to PF Scheme in India even if they are already contributing in the social security of their home country. Thus there is double contribution to social security both in India and the country of employees origin.
Besides the Notifications dated 01.10.2008 mentioned earlier, the Government has issued another Notification No. GSR 148 dated 03.09.2010. The recent notification specifically provides that an ‘International Worker’ unless he is an excluded employee under respective SSA shall be entitled to withdraw the balance of his PF Account on retirement of service at any time after the attainment the age of 58 years.
The harshness of the above provision will be clear if the problem is looked at from the expatriate’s angle. Normally expatriates come to India for a short duration; they do not always attain retirement age of 58 years in India.
In all such cases, unless the expatriate belongs to a country with whom India has an enforceable SSA, his contribution to PF and all balance lying therein shall be held-up in India until the employee reaches the age of 58 years.
In the above background, signing of SSAs is very important for expatriate employees to motivate them to work in India. It is unfortunate that while Government has hastily issued notification no. GSR 148 without bothering to see that India has effective SSAs with only three countries till date. It is curious to note that SSAs have already been signed with France, Netherlands, Czech Republic, Denmark, Hungary, Norway, Luxembourg, and Republic of Korea but have not yet been made effective.
It is strongly felt that the Government should expedite finalisation of SSAs with as many countries as possible; until then the notification no. GSR 148 should remain suspended.
H.P.Agrawal, (Author is a Sr. Partner in S.S. Kothari Mehta & Co.) hp.agrawal@sskmin.com
