In Brief :- On October 1, 2008, the Ministry of Labour and Employment, Government of India (“MLE”) made it compulsory for International Workers to contribute to Indian social security by notifying the Employees’ Provident Funds (Third Amendment) Scheme 2008 and the Employees’ Pension (Third Amendment) Scheme 2008. The Ministry has now introduced further amendments to the above schemes which have been notified as the Employees’ Provident Funds (Amendment) Scheme 2010 (“EPF”) and the Employees’ Pension (Amendment) Scheme 2010 (“EPS”). While these amendments have come into force vide notification in The Gazette of India dated September 11, 2010, the same have been uploaded only recently in the official website of the Government for wider publicity.
Key Amendment :- The most noteworthy change, which is likely to have the largest impact, is that, unlike in earlier provisions, International Workers will now only be permitted to withdraw the accumulated balance to their credit in the Fund if they retire from service in the establishment after attaining the age of 58. In certain circumstances, an earlier withdrawal may be possible as specified below. This is a major deviation from the earlier position wherein International Workers were entitled to withdraw the accumulated balance at the end of their employment in India, (i.e. on migration from India for permanent settlement abroad/taking up employment abroad). Furthermore, it appears that these amendments will apply to all cases which were covered under the former Scheme notified in 2008.
1. An IW can withdraw accumulations in the Fund standing to his/her credit in the following circumstances:
• On retirement from service in the establishment after attaining 58 years of age.
• On retirement on account of permanent and total incapacity to work due to bodily or mental infirmity duly certified by the prescribed medical officer/registered practitioner, as applicable.
• On suffering from tuberculosis, leprosy or cancer, even if contracted after leaving the service on the grounds of illness but before payment has been authorised.
• On grounds specified in the relevant SSA under which the IW is covered.
2. Where salary is paid in foreign currency, to convert the salary into INR, the scheme now provides for the use of telegraphic transfer buying rate (“TT buying rate”) offered by the State Bank of India as on the last working day of the month for which the salary is due.
3. Payment of Provident Fund (“PF”):
• If the IW is covered under a SSA, the payment of PF is to be done in the manner and as per the terms specified in the relevant SSA.
• In all other cases, the amount shall be payable to the credit of the IW’s bank account in India.
• The definition of “pensionable service” has been amended to include the period of coverage earned in another country under the relevant SSA.
• The Government will no longer contribute to the IW’s pension fund.
• The pensionable salary is to be determined on the average monthly pay drawn during the contributory period of service.
• An IW who is covered under a SSA, and leaves service before being eligible for a monthly pension, shall be entitled to a totalisation benefit. This may be provided by the applicable SSA. Furthermore, where the IW has not rendered the eligible service even after including the totalisation benefit, as may be provided by the relevant SSA, the benefit can be withdrawn as per Table V provided in Employees’ Pension Scheme, 1995.
• Where the beneficiary under the scheme is covered under a SSA, the pension and other benefits shall be disbursed in the manner and as per the terms and conditions specified in the SSA.
The Bottom Line
The amendment, and the suddenness with which it has been made effective, is bound to cause major hardship to all International Workers coming from non SSA countries as well as their employer companies. Most of the International Workers are well below the retirement age of 58 years and come to work in India for a limited number of years. If they are not permitted to withdraw the PF until the age of 58, huge sums of money will get blocked in their PF accounts since it would be extremely challenging for them to come back and reclaim this money upon retirement. The proposal to credit the accumulated balance of PF to an Indian bank account would also create difficulty as International Workers would need to hold the Indian bank account until the age of 58, which may not be practically feasible.
One will have to see if the authorities recognise these hardships and provide for some relief either through modification of the Scheme or through the SSA mechanism.
This document is not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.