With the globalization of Indian economy and increase in development of international trade the movement of workers across the world has also been increased. Social security is an important aspect while structuring the international assignments for the employees. Any social security benefit payable in the host country may become an added cost to the employer, especially in situations where there are restrictions for withdrawal. It is in this context that social security agreements (“SSAs”) executed between countries came into perspective and they need to be carefully evaluated to help reduce the financial implications.
Until now, the Indian employees working abroad/ foreign employees working in India were excluded from the purview of the PF Act. Whenever any Indian national was deputed overseas, he was required to contribute to the social security fund of that country. Normally, such contribution was paid by the employer company. However, when such employee used to return to India, unless he completed laid down criteria, he was not allowed to withdraw the amount contributed to the social security fund of that country in terms of the withdrawal rules of the other country. The result was that employee and the employer company suffered financial loss.
International Worker
An Indian employee is deemed to be an International Worker if:
a) He has worked or is going to work in a foreign country;
b) With that foreign country, India has entered into a Social Security Agreement (SSA); and
c) Such employee being eligible to avail the benefits under a social security program of that country, is availing of benefits as per the SSA.
OR
A foreign employee is deemed to be an International Worker if:
a) He is other than an Indian Employee not holding Indian passport; and
b) Works for an establishment to which the Indian provident fund legislation applies.
It implies that if an Indian employee who is working in Foreign country with which India has not entered into SSA (Social security Agreement) will not be covered under International Worker and such employee is required to contribute in the Social security scheme of that country in which he is working. Also, international workers working under employment visa are subject to these regulations, contractual work and short- term business visit is exempt from the EPF regulations.
Social Security Agreement
An SSA (also known as Totalization Agreement) is a bilateral instrument to protect the social security interests of workers posted in another country. Indian employees, who are posted to other countries by their Indian employers, without terminating the contract of employment, continue to make social security contribution in India as per Indian law. On account of the assignment undertaken in the other country, they may also be required to make social security contribution under the host country’s laws. Generally, such employees do not derive any benefit from such contributions made outside India on account of restrictions on withdrawal and stipulations pertaining to duration of stay. Being a reciprocal arrangement, an SSA is intended to provide for avoidance of double coverage i.e., coverage under the social security laws of both the home and host countries. Ordinarily, an SSA addresses 3 issues, namely:
1. Detachment: A ‘detached worker’ posted in an establishment in India but contributing to the social security program of the home country in terms of the bilateral Social Security Agreement signed between that country and India shall be an ‘excluded employee’ under these provisions and is not required to contribute to the Social Security scheme of the host country.
2. Exportability of Pension: A provision which allows international workers who are sent on assignment to another country, that employee is making contributions towards the Social Security scheme of the host country and exporting benefits to their home countries, on completion of their assignment or on retirement.
3. Totalization of Benefits: The period of service rendered by the employee in a foreign country is counted in determining the eligibility of benefits.
A table below showing major difference between provisions applicable in case of SSA countries and Non-SSA countries:
| Basis of Difference | SSA Country | Non SSA Country |
| Meaning | SSA country is a country with which India has a bilateral agreement to protect the social security interests of workers posted in another country. | Non-SSA country is a country with which India has no bilateral agreement to protect the social security interests of workers posted in another country |
| Financial Implication | SSA between the two countries helps to reduce the financial loss for both the employee and employer because SSA allows the employee to contribute in only one country whether in host country or home country. | Employee and employer both are contributing towards the social security scheme of both the countries. In the absence of SSA an employee is unable to withdraw from Social security funds until the age of 58 of the host country because of withdrawal rules of that country which results in financial loss to both the employee and employer. |
| Contribution | International worker coming from a country with which India has SSA and is holding COC (certificate of Coverage) is not required to contribute towards the Social Security Funds of host country . | International worker coming from a country with which India has not entered into SSA has to contribute towards the Social Security Funds of host country. |
| Totalization benefit | International worker covered under SSA is allowed totalization benefit which means if the employee has not completed the prescribed period of 10 years in India for getting EPS benefit, then the period of eligible services shall be counted considering the period of services of his home country. | In case of Non SSA country, no such benefit is available to the employee. |
| Withdrawal from Funds | International worker covered under SSA is allowed to withdraw from the Social Security funds if he has not completed 10 years of eligible services even after including the Totalization benefit. | International Workers not covered under SSA are not allowed to withdraw from Social Security funds for contributory service of less than 10 years. Withdrawal is possible only after attaining the age of 58 years. |
| Example | Mr. A, an Indian citizen working for past 7 years in India, after which he was sent to Australia for some assignment and he worked there for 5 years. In this case, Mr. A is not required to contribute to Social Security funds in Australia and he is eligible for totalization benefits.
As far as withdrawal is concerned, since he has rendered services for more than 10 years (considering the totalization benefit), he is not eligible for withdrawal. However, he is eligible for pension benefits. If in the above example, had Mr. A worked in Australia for 2 years, then he was eligible for withdrawal from the funds because even after totalization, he rendered services for less than 10 years. |
Mr. B a US citizen working for past 10 years in USA was sent to India on deputation wherein he worked in India for 7 years. In this case, Mr. B needs to contribute in the Social Security funds of India and he will not be allowed to withdraw from pension funds in India. However, he will get a Pension Scheme Certificate after attaining the age 58 years. |
Let’s understand with a graphical depiction as below,
About the Author
Author is Amit Jindal, ACA working as Manager Taxation in Neeraj Bhagat & Co. Chartered Accountants, a Chartered Accountancy firm helping foreign companies in setting up business in India and complying with various tax laws applicable to foreign companies while establishing their business in India.
Author Bio
1) Is it mandatory for an IW to contribute to Pension fund in India?
2) What is the procedure to withdraw Pension fund;
3) Does the individual have to withdraw PF only upon attaining age of retirement or is it possible to withdraw prior to that;
4) What will be the taxability of pension on withdrawal.
1) Is it mandatory for an IW to contribute to Pension fund in India?
Ans.: Yes
2) What is the procedure to withdraw Pension fund;
Ans.: You need to log in using using your UAN number on PF portal and lodge your request for withdrawal.
3) Does the individual have to withdraw PF only upon attaining age of retirement or is it possible to withdraw prior to that;
Ans.: Prior withdrawal is only available for the employees who are from SSA countries
4) What will be the taxability of pension on withdrawal
Ans.: Pension contribution is not taxable. Interest on PF is taxable only on the contribution in excess of 2.5 lakh
Hi, I am a US citizen working in India for last 7 yrs. I have questions related to EPF/EPS. Can we have a chat/consultation with someone in taxguru who can guide me in this topic?