Foreign workers taking up overseas assignments pay more attention to the tax regime of the country when determining costs, and often tend to overlook the social security laws of the country, which are equally important.
India requires every business entity employing more than 20 workers to register with the national social security system and makes it mandatory for employees and employers to contribute towards retirement and insurance scheme.
The country’s social security system is governed by the Employees Provident Funds (EPF) Miscellaneous Provisions Act, 1952, which manages the following three schemes:
- Employees Provident Funds (EPF) Scheme, 1952 (Provident Fund Scheme).
- Employees’ Pension Scheme (EPS), 1995 (Pension Scheme); and
- Employees Deposit Linked Insurance Scheme, 1976.
Provident fund for international workers
An International Worker (IW) is any employee who is a foreign national working in India under an employer registered with the EPFO or an Indian employee who is working in a foreign country with which India has a Social Security Agreement (SSA).
Accordingly, every foreign worker employed with an establishment to whom the EPF applies must become a member of the provident fund (PF) from the first date of his/her employment. There is no minimum period of stay in India for activation of PF compliance.
The PF contribution rate for foreign workers registered with EPF (or IWs) is 12 percent. The PF rate is calculated on full salary of the IW irrespective of whether the salary is remunerated in India or outside India, split payroll, or multiple country sources. The employer contributes an equal amount, with the sum of PF being 13.61 percent of the total wages of the employees.
There is no cap on the salary on which contributions are payable by the employer as well as the employee.
Exemptions
IWs are exempt from contribution towards PF only if their home country has a social security agreement (SSA) or economic-bi-lateral treaty with India.
Social Security Agreements
An SSA is a bi-lateral instrument that protects the interests of the workers in the host country. The Government of India through its initiative for the benefit of both the employers and employees has entered into Agreement with several countries to ensure that the employees of home country do not remit contribution in that country, get the benefit of totalisation period for deciding the eligibility for pension, may get the pension in the country where they choose to live, and the employers are saved from making double social security contributions for the same set of employees. The Employees Provident Fund Organisation has been authorized to issue the Certificate of Coverage to the employees posted to the countries having signed Agreement with the Government of India.
Bilateral social security agreements protect the interests of Indian professionals, skilled workers working abroad by providing the following benefits:
- Avoiding making double social security contributions: Once an SSA is signed between India and a foreign country, it exempts the Indian worker (working on short term contracts abroad) from making a social security contribution in that foreign country. This exemption is provided only if the Indian worker is covered under the social security system of India and continues to pay his/her contribution during the period of overseas contract.
- Easy remittance of benefits (Exportability): An SSA between India and a foreign country enables the Indian worker/professional to remit his/her accumulated social security contribution made in a foreign country, in case of relocation to India/third country.
- Aggregating the contribution periods (in two countries) to prevent loss of benefits (Totalization): An SSA allows aggregating residency periods of social security contribution made by the Indian worker / professional in India and the foreign country to qualify for retirement benefits. For this any International Worker may apply for CoC i.e. Certificate of Coverage from online portal of EPFO.
- All the SSAs are on reciprocal basis. Six proposals are in the pipeline i.e. with Spain, Thailand, Sri Lanka, Russia, Cyprus and USA.
- Despite these benefits, very few countries have entered into an SSA with India. This limits the availability of SSA exemptions for international workers from countries like the US and UK, which are yet to ratify an SSA with India.
At present, India has SSAs with 19 countries, out of which 18 are in effect. Below is the complete list of the countries with which India has SSA,
1. Belgium
2. Germany
3. Switzerland
4. Denmark
5. Luxembourg
6. France
7. Korea
8. Netherland
9. Hungary
10. Sweden
11. Finland
12. Czech Republic
13. Norway
14. Austria
15. Canada
16. Australia
17. Japan
18. Portugal
Withdrawal rules under EPF
An international worker may withdraw the accumulated balance in the EPF account in one of the following situations:
1. at the time of retirements, that is, on or after 58 years of age.
2. in case of retirement due to permanent and total mental or physical incapacity to work.
3. in case of serious illness such as cancer, leprosy, or tuberculosis; or,
4. on completion of Indian employment, if the IW’s home country has an SSA with India.
The facility to receive PF refund on the date of completion of Indian employment is not available for IWs who are not covered under SSA.
This makes it challenging for expatriates belonging to a non-SSA country and working in India, as their provident funds are locked-in until they attain 58 years of age. Besides, IWs can withdraw the funds only to an Indian bank account, post retirement – making the entire withdrawal process practically more difficult.
Withdrawal of funds under EPS
The EPS regulations do not recognize the employer’s contribution to the pension scheme. Since only employer’s contributions are allocated to the EPF, the EPS does not entitle IWs to pension benefits when they leave India, regardless of accrued employer contributions.
The pension withdrawal is only available to employees who are covered under an SSA that has come to effect, and to employees who have not completed the eligible service of 10 years even after including the totalization of service under the respective SSAs.
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
Thanks in advance, Iam an OCI card holder of India, with British passport, iam working in India for UK, salary is also paid in India, what is the PF percentage to be calculated on my salary
How is PF contribution of an OCI working in India is calculated?
I am a Dutch Citizen
I will start working with Indian employer from Oct 2023
How much PF will be paid by Employer and me?
Take example CTC 20 Lakhs
I will not have COC
if IW has completed indian employment and he has to withdraw his PF so that PF amount will taxable or tax free?
I am looking for some professional advice ( willing to pay a fee ) on PF for International PF and Gratuity. please could you let me know the best way to contact you.
I am a US citizen and have contributed 9.5 years into the Indian EPFO. I understand that I can only qualify to withdraw my pension when I turn 58 years old and only after contributing 10 years into the EPFO. What options would I have to either collect a proper pension in India (if I am living abroad) or how do I go about taking out my contributions (whatever I can withdraw), pay my taxes, and repatriate the rest to the US? More than happy to schedule a call with your firm and pay for your service.
Hi Raj,
I am holding an UK passport with OCI and also based out in London however I am employed as Indian Employee and for EPF I am termed as International Worker. However recently I am been asked for AADHAAR number to be updated in EPF portal but I don’t have an AADHAAR as I am not Indian resident. I have been told that failing to provide AADHAR number my PF contribution will be stopped. Can you please advice any alternate options.
Thanks in advance.
Since you are not resident of India, you don’t need to have an AADHAR. The mail that you receive is a general reminder which has been sent by the PF department automatically to everyone. You may ignore the same.
Hello,
can you please confirm the rules of PF or guide –
I am canadian citizen with OCI . I am resident indian (for tax purpose) . How much should the employer deduct as PF and how much should the employer contribute?
thank you,
nirali
Hi Even I am Canadian citizen with OCI card in same situation as your. My company says they will deduct 24% PF . I am concerned with this.
Please help me
I have contributed to EPF for 5 years and VPF (short period) as an international worker. My home country is not SSA country and now my PF withdrawal is rejected with the comment that I should get it after the age of 58.
I have read that if I have got terminal illness or unable to work anymore, I can claim my PF withdrawal. Can you help on this case?
Hi Uyanga,
We can help you understand the possiblity of the withdrawal of your EPF under different circumstances under which you might be able to withdraw the fund.
Thank you
Prakash
+91 9818728663
Hello sir, In our company around 100 Nepalese citizens are working in Nepal under Indian payroll based at Bangalore. All people as SBI Nepal Branch, However they are not able to withdraw their PF amount as PF authorities insisting account in Indian Banks, Indian Bank are not able to open an account without Aadhar and Pan How to withdraw their PF contribution in the present scenario
Hello sir,
In our company around 100 Nepalese citizens are working in Nepal under Indian payroll based at Bangalore.
All people as SBI Nepal Branch, However they are not able to withdraw their PF amount as PF authorities insisting account in Indian Banks, Indian Bank are not able to open an account without Aadhar and Pan How to withdraw their PF contribution in the present scenario
I only want to know, Is EPFO circular dated 29/08/2014 apply on international worker or not?
Hi,
I’m a Malaysian citizen holding OCI card. I’m working in India since 2011. I got married to Indian citizen. My pf deduction was all good. Recently I tried withdrawing my pf amount from all the companies that I have worked all these years. I could able to withdraw from all the companies but the most recent which I have worked till 12/2020 was not able to withdraw. The reason was my pension amount was shown more then 15k. The previous company has shown 16k and the rest of percentage equally on employee and employer account. So I could withdraw all the money include pension. When I ask my employer to solve this issue they said they will try to and giving lots of reasons as they showed me as international employee. Even my previous to previous company has shown the same and I could able to withdraw my money. Can I get suggestions or help regarding my issue?
My friend worked with india in 2018 to 2019 (one and half year) He is from SSA country . Employer deducted the PF and contributed it to PF account and pension is shown as his salary was high. Now he is trying to withdraw the PF then PF inspector saying that his pension is not deducted to they need letter from employer and the pension amount the employee will not get as he is a international employee. But now the company has closed down so how can he process his application further. Please help me
Thank you so much for such an informative article.
My husband and I worked in India and have left to settle back home (SSA country).
We would like to withdraw our PF sums. Before we left India, having an Aadhar card / number was not compulsory but we cannot even access our passbooks without this now.
Is it still possible to withdraw our funds and if so, where could we find information on how to proceed?
Yes, you can still withdraw. We assist on withdrawing the PF fund where Adhar is not available. The procedure will be manual. You can visit our website for more information.
Hi Neeraj, A small correction. 12% is not on total salary. PF Contributions should be calculated as below (Source: https://epfindia.gov.in/site_docs/PDFs/Operating_SSAs_PDFs/Hand_Book.pdf ). HRA is excluded.
MONTHLY PAY FOR THE PURPOSE OF CONTRIBUTIONS
The monthly pay shall be the pay as specified under Para 29 of the EPF Scheme, 1952, which covers:
Basic wages (all emoluments paid or payable in cash while on duty or on
leave / holiday except Dearness allowance, House rent allowance, overtime allowance, bonus, commission or any other similar allowance payable in respect of employment and any presents made by the employer)
Dearness allowance (all cash payments by whatever name called paid to an employee on account of a rise in the cost of living)
Retaining allowance
Cash value of any food concession
Yes. It has not been mentioned about contribution much in the article. The stress is on withdrawal. We have answered few queries on that mentioning about the contribution where we duly mentioned that HRA will not be considered while calculating contribution.
I was an international worker in India. Employer had not paid the PF on full wages but has now agreed to pay it after leaving. However the HRA was 80 percent of basic. Should they be paying on the portion over 50 percent as allowed by the IT act. Else companies can keep every thing in HRA to circumvent paying?
Hello…..I am a British Citizen working in India since June 2011. My company has only started deducting PF on my gross salary minus HRA from April 19.
Can I insist to them to pay arrears from June 11 ? Basically from which date does this compliance need to happen.
NK
Yes, you are eligible for arrears.
was an international worker in India. Employer had not paid the PF on full wages but has now agreed to pay it after leaving. However the HRA was 80 percent of basic. Should they be paying on the portion over 50 percent as allowed by the IT act. Else companies can keep every thing in HRA to circumvent
Read more at: https://taxguru.in/corporate-law/provident-fund-international-worker.html
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Hi my wife is South African citizen she worked in India for 3 years. She left the job this year March now she is in South Africa. We tried to withdraw her PF but it got rejected . The rejected reason was “Produce certificate that member is international worker”
My question is
Can she withdraw her PF now ?
How to get this International worker certification?
HELLO SIR,
MY RELATIVES WAS WORKING IN SAUDI AND BEFORE COVID 19 BUT NOW THEY LEFT THE JOB AND SETTELED IN INDIA. HOW CAN WE CLAIM THEIR PF AMOUNT AND WHAT DOCUMENTS ARE REQUIRED AND WHAT SITE WE HAVE TO LOGIN TO VIEW PF AMOUNTS.
INDLY PROVIDE AND ANSWER AS SOON AS POSSIBLE
THANK YOU