Expatriates working in India and some Indians working abroad for an Indian employer are required to make mandatory contributions to the Indian government's statutory provident fund.
The provident fund contributions fund two programmes:
On October 1, 2008, through a notification in the Official Gazette, the Ministry of Labour and Employment in India, extended the scope of the Employees Provident Fund and Miscellaneous Provisions Act 1952 to include international workers (both Indians working outside the country and non-Indian citizens working in India) who are now required to contribute 12 per cent of their basic salary plus dearness allowance, the cash value of food concession and retaining allowance (matched by an amount equal to the employee's 12 per cent contribution payable by the employer) to the Employees' Provident Fund Organisation (EPFO) that implements the Employees Provident Fund Scheme (the 'EPF Scheme'), irrespective of the contributions they may be making to such schemes in other countries.
The Employees Provident Fund and Miscellaneous Provisions Act 1952 provides for the institution of:
- Provident Funds,
- Pension Funds, and
- Deposit Linked Insurance Fund.
Establishments employing 20 or more persons and engaged in any of the 180 industries or classes of businesses (this encompasses most activities) specified are covered under the scope of the Employees Provident Fund and Miscellaneous Provisions Act 1952 (the EPF Act).
Also, contributions are mandatory for employees who earn up to Rs 6,500. The EPF Act can extend to other establishments that are not mentioned in the EPF Act by way of notification in the official gazette issued by the government.
It is important to note that once an establishment has been under the purview of the EPF Act it continues to be covered under the EPF Act, even if the number of employees is less than 20 at a later date.
Participation in the EPF Scheme is compulsory for employees in almost all establishments in India that meet the basic qualifying criterion of employing 20 or more persons. Since the EPF Act applies automatically to qualifying establishments, employers are required to file the particulars in the specified format for registration and allotment of business number.
The EPF Act and the relevant rules provide that the Employer's contribution to the EPF will be at the rate of 12 per cent of the wages, including the basic wages, dearness allowance and retaining allowance (if any), on its part and an equivalent amount on behalf of the employee, which is to be recovered from the employee' salary.
The EPF Act also provides for the exemption from the operation of the EPF Act in certain instances determined on a case-by-case basis.
Apart from granting exemption to an establishment from the operation of a particular scheme, the Act also provides for grant of exemption to an individual employee and also to a class of employees. Thus, exemption from the operation of the scheme is granted.
If an organisation finds that the Employees Provident Fund and Miscellaneous Provisions Act 1952 is applicable to it, then it should fill-in the prescribed form for registration. The form, along with one or more of the supporting documents, should be submitted to the respective provident fund offices for registration.
The statutory contributions are deducted from the salary of the employees and equal contributions are being made by the employers. This has increased the cost of human resources for employers.
Until now foreign nationals working in India and Indian nationals working outside the country were not required to contribute to any social security or pension scheme in India. The recent change is expected to encourage more countries to establish social security totalization agreements with India.
India has such agreements with Belgium, France and Germany and is negotiating similar agreements with Oman, the Netherlands and Bahrain.
India and the United States have been discussing a totalization agreement since 2006 but have not yet reached a consensus.
Expatriate employees are expected to be allowed to withdraw accumulated contributions when they meet the normal eligibility requirements at the end of 10 years of service.
They could also make withdrawals in keeping with a social security totalization agreement if they belong to one of the countries that has such an agreement with India or if the employee's home country has a reciprocal arrangement which permits withdrawals by Indian employees in their country.
Poorvi Chothani, Esq (LL.M.-University of Pennsylvania, USA, Solicitor-England and Wales. Poorvi, admitted to the Bar Council of Maharashtra and Goa and the New York State Bar) is the founder of LawQuest, a general practice law firm headquartered in Mumbai, India and can be reached at info@lawquestinternational.com
Disclaimer: The information is not a comprehensive consideration of the subjects discussed and is intended to provide general information. Readers should not conclusively rely on the information as legal advice and should seek independent counsel before any action is taken with respect to these or other specific issues.
