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:

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.

International Worker

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.

Amit JindalAbout 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.

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Neeraj Bhagat & Co. is helping foreign companies in opening up of Liaison/ Branch Office in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat is the founder of Neeraj Bhagat & Co. Chartered Accountants, a Chartered View Full Profile

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41 Comments

  1. Jonny says:

    I am a UK citizen working in India on a 3 year contract, making contributions to the EPF. I understand that as UK has no SSA with India i must wait till i am 58 to withdraw.
    1. Once i depart india does my sum continue to accrue compound interest at the same rate until i return? Is this rate of interest set at a fixed level in any way?

    2. What are the tax implications upon withdrawing it on retirement?

    Thank you for any clarity

    1. Neeraj Bhagat & Co. says:

      Hi Jonny

      Your sum will continue to accrue with compound interest at the rate in force. The rate of interest may change as per the Government policies.

      Withdrawing amount after retirement will be tax free in India.

  2. S Ramachandran says:

    We had an International Worker from a country that has no SSA with India, as our employee till last year i.e 31st March, 2020. The IW was with us for about 10 years. Out of sheer ignorance we had not opened an EPF account for the IW. There has been no contribution from either side.
    Now that the IW has left service and gone back to his home country for good, will we be held liable for failure to contribute to his EPF ?
    Please advise

    1. Neeraj Bhagat & Co. says:

      Yes it is the responsibility of the employer to deduct and deposit the PF of IW . If not done , authorities may come back and ask for it .

  3. Asha K M says:

    Dear Mr. Neeraj,
    We have recruited one Expat, British National. He is working in India since 2019. Kindly confirm if the employer contribution should be towards both PF & Pension fund.
    In his previous employment, they have not shown him as international worker and have contributed towards both PF & Pension. Kindly advise.

    1. Neeraj Bhagat & Co. says:

      Dear Asha,

      You need to deposit PF on gross salary since he is international worker from country which does not have SSA with India.

  4. Naga says:

    Hi,
    I raised claim multiple times for PF withdrawal since I left India after 4 years of service. Each one was rejected with different reason but the final one was rejected as i was a IW worker from UK and that I can only withdraw at 58 years. Is there any way around this ?

    Regards
    Naga

  5. P Thaker says:

    Hi, I am a USA citizen with OCI card and working in India for past 10 years. I noticed that every month a good amount is getting deposited in my EPS account in addition to the EPF account. When I retire after age 58, what happens to the EPS amount accumulated in my account? Can I withdraw it or sign up for a pension? Thanks.

    1. Neeraj Bhagat says:

      In case of EPS, the lump-sum withdrawal amount is allowed if the service period is less than 10 years. If the total years of service period exceed 10 years, then you will be given a certificate of pension. This certificate mentions pensionable service, pensionable salary and the amount of pension due on the exit of employment.

      1. P Thaker says:

        Thanks for prompt reply. Is there a cap on the monthly EPS contribution for the International worker just like Indian workers have a cap of Rs 1250 per month? In my case I see that a much bigger sum is being contributed to EPS than Rs 1250 per month. If there is no cap on monthly contribution then I hope that there is also no cap on Pensionable salary when they issue the pension certificate upon retirement. Can you please clarify these aspects? Thanks.

        1. After September, 2014, the maximum capping is Rs. 1,250/- only even in case of IWs where SSA exist. There is hardly any chance of higher contribution. To further understand your case, we request you to contact us directly.

  6. Rishab says:

    Dear sir,

    I have been working outside India under an Indian Employer in a country which has SSA with India. Before coming, I signed COC. So now, for the last 2 years, do I have to pay PF on 100% of my salary or just 12% on 15000?

    Thanks

    1. Neeraj Bhagat says:

      If you have valid COC and working outside India in a country with which India has SSA, then you need not to contribute in that country. However, you have to continue to contribute in India at 12% on minimum Rs. 15,000/-

      1. Rishab says:

        Thanks for the reply sir. Then in what case does one has to pay PF on 100% of their salary? Am I not considered an International worker in this case?

        1. Neeraj Bhagat says:

          Voluntarily you can contribute 12% of your whole salary and if you are working in a country where SSA is not available then you have to contribute in that country. For more details on this you can directly contact us.

    1. Neeraj Bhagat says:

      An IW will be eligible for pension benefit only if he is enrolled under SSA with India as the benefit of totalization is available for SSA IWs only. The relevant Rule 43A of EPS, 1995 may please be referred.

  7. Ajay Kaul says:

    I am an international worker from a non SSA agreement country who worked in India for some advancee time and returned back to his country of citizenship prior to retirement age. When and how can I claim my EPF and EPS amounts?

  8. Viji says:

    Hello Neeraj,

    My husband and I are OCI holders settled permanently in India and working in India. We are citizen of a country with which India does not have a Social Security Agreement (SSA). Company that my husband works for deducts PF @ 12% of his GROSS salary. However, company that i work for deducts PF @ 12% of my BASIC salary.

    Which is the correct way and why? please can you help me understand?

  9. Khan says:

    Amit, thanks for a brilliant and well explained article. I have been working in India since June 2011. I had two questions :

    1. If the PF for IW has to be on total monthly salary :
    A. Does that include HRA as well ?
    B. Would it apply from June 2011 or from last year when the Supreme court clarified the definition of salary.

    My company has implemented this only from last year

    Thanks

    1. Neeraj Bhagat & Co. says:

      Hello Mr. Khan,
      Please see pointwise reply to your queries:
      1. PF has to be paid on gross salary for IW.
      2. Yes it includes HRA as well.
      3. It would apply from June 2011 as Supreme court ruling is for non IW .

  10. RN Kamath says:

    I was NRI during the last 4 years and was enrolled in the Social Security scheme (similar to PF) in the country of employment. Subsequent to my return to India, withdrawal amount from overseas PF was received and credited to my Indian bank account. Can I claim tax exemption for this amount if my status for this year would be Resident..

  11. Murali Nathan says:

    With the retirement age in India raised to 60, does this change the age at which IW can withdraw to 60 or remains at 58?

    Thanks

  12. Sunil says:

    Hello Neeraj,
    I an OCI with UK citizenship. Earlier this year, I opted for International Transfer of employment and moved my employment status from India to UK with the same company (living in UK for 20 years).

    Is my PF and SA locked in India till 58 years? Are there any options available to make an withdrawal? Many Thanks

    1. Neeraj Bhagat & Co. says:

      Hello Sunil,

      There is no Social Security Agreement between India and UK , therefore PF cannot be withdrawn before 58 years of age.

  13. Nri says:

    Dear Sir,

    I’m an OCI settled permanently in India and working in India. I’m a citizen of a country with which India has a Social Security Agreement (SSA). I have a couple of questions regarding the VPF contributions.

    1. Can I contribute to VPF in India ?
    2. . Is the VPF contribution limit for International workers like me 100% Basic Salary ?

    3. In the worst case of job downsizing or early retirement, can I withdraw the entire amount from VPF having settled down in India permanently (I’m a citizen of a country with which India has an SSA agreement)? Will the entire Principal and interest accrued be given back ? I know that Indian citizens can withdraw the entire amount from VPF in case of unemployment for more than 60 days. Is this applicable to me ?

    4. Upon withdrawal from VPF, is there any tax liability ?

    Thanks

    1. Neeraj Bhagat & Co. says:

      Please see pointwise answers:

      1.Yes you can voluntarily contribute.
      2.It can be 12% of basic salary or 12% of 15000
      3. Yes you can .
      4.Taxable if withdrawn before five years of continuous service.

      1. Nri says:

        Dear Sir,
        I’m talking about VPF and not EPF. Indian citizens can contribute 100 % of basic salary to VPF. Can international workers contribute to VPF and is the limit 100 % of basic salary ?

          1. Nri says:

            Thank you very much sir for clarifying my questions.
            Could you also confirm that the VPF limit for international workers is 100% of Basic salary
            Thanks again for the help

  14. ANTHONY GILSON says:

    Kindly share the Government notification on withdrawal of EPF balance “on completion of Indian employment, if the IW’s home country has an SSA with India”

    Thank you,

    A Anthony Gilson
    +91 9443998719

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