Background- Indian employees posted to overseas countries continue to contribute towards the social security system in India. Additionally they are also compelled to make the social security contributions in the host countries. Further most of the foreign countries do not allow exportability of their social security benefits. Accordingly on completion of the term of contract, such Indian workers generally do not get any benefit from the social security contributions paid abroad.
On the other hand the inbound expatriate employees from the overseas countries were earlier not required to contribute towards the Employees Provident Fund Scheme, 1952 and the Employees Pension Scheme, 1995 (collectively referred to as Indian Provident Fund schemes) in India. Their salaries generally exceeded the threshold limit of Rs. 6500 p.m. (approx. USD 145) beyond which it was not mandatory for them to contribute towards such schemes.
In order to bring a level playing field, the Government of India made some fundamental changes in the Indian Provident Fund schemes vide a notification dated October 1, 2008 which came into effect from November 2008. As per the notification, the expatriates working in India are mandatorily required to contribute towards the Indian provident fund schemes unless they fall under „excluded employee? category as defined in the said notification.
This category inter-alia includes that the contribution is not mandatory for the expatriates pertaining to the countries with which India has signed a Social Security Agreement („SSA?).
With the new concept of „International Workers? („IWs?), the Ministry of Labour- Government of India has made the applicability of the Indian Provident Fund schemes, mandatory for all the expatriates (foreign citizens) holding other than an Indian passport and coming from countries with which India has not signed SSA. The applicability was made mandatory irrespective of the erstwhile salary limit, which meant an increase in the assignment costs and the critical compliance requirements for MNC?s sending its employees to India. The recent notification dated September 3, 2010 further restricted the IW?s to withdraw accumulated balances lying to the credit of their accounts in the Indian Provident Fund schemes till the attainment of superannuation .As a consequence the employers from the overseas countries with which India has not yet signed and notified the SSA, experience a huge increase in the overall cost of deputing their employees to India. These notifications issued by the Government of India seem to put an additional pressure on various countries to sign their SSAs with India.
The signing of SSA will bring bilateral benefits to the signing countries, some of which are:-
Benefits under Social Security Agreements
SSA’s protect the interest of citizens going overseas which includes :
• Continuation of benefits under the social security scheme in the home country
• Exemption from social security contributions in the host country (for the period of detachment)
• Making Indian companies more competitive by substantially reducing the cost of relocation
• Encouraging movement of cross border employees
• Removing additional compliance costs, and
• Improvement of ties between India and the country with which SSA is signed.
General benefits available in SSA are :
• Detachment – Employees sent on an assignment up to specified period are exempt from making social security contributions in the host country provided that they continue to make social security contributions in their home countries.
• Exportability of pension – Employees sent on assignment for more than the period specified in the SSA, and who are making social security contributions under the host country laws, would be entitled to “export” the benefits to their home countries on completion of their assignment or on retirement. However this is not provided for, under the social insurance agreement with Germany.
• Totalisation of insurance periods – The period of service rendered by an employee in the host country will be considered for determining his “eligibility” of the social security benefits. Further the payment of benefits to the individuals from the social security systems of each country will be generally in proportion to the length of their service.
Comparative analysis of benefits under various SSA signed by India
A brief synopsis of the benefits available under SSA already signed by India:
|Sr.No.||Countries||Signed||Effective||Timelimit of Coverage||Detachment||Exportability of pension||Totalisation of periods|
|2||Czech Republic||9-Jun-10||To be notified||60 months||Available||Available||Available|
|3||Denmark||17-Feb-10||60 months||Available||Available||Not Available|
|4||French Republic||30-Sep-08||60 months||Available||Available||Available|
|5||Germany||8-Oct-08||1-Oct-09||48months with an extension of 12 months||Available||Not Available||Not Available|
|6||Hungary||3-Feb-10||To be notified||60 months||Available||Available||Available|
|8||Netherlands||22-Oct-09||60 months||Available||Available||Not Available|
|10||Republic of Korea||19-Oct-10||60 months||Available||Available||Available|
|11||Switzerland||3-Sep-09||72 months||Available||Available||Not Available|
Status of SSA yet to be signed by India and in process of negotiation:
Negotiations of Indian Government to sign SSA with Sweden, Australia, USA and Canada are underway and are not yet finalized. The current stage on the SSA undergoing negotiations based on the reports in public domain1 is outlined below:
Canada: As per Michael De Jong, the Attorney General and Government house leader of the Canadian province of British Columbia, SSA with Canada was ought to be signed in early summers of 2010
United States: The Government of India is likely to link the progress on the social security agreement with US to that of the Bilateral Investment Promotion Agreement (BIPA). The ministry of overseas Indian affairs will be taking up the matter with the ministry of external affairs.
The government has been pursuing the social security agreement since 2006 without much success. The major issue is the revenue due to contributions made by Indian employees working there. As per current provisions in US, a minimum qualifying period is 10 years in order to be eligible for pension, whereas it is inequitable with the current visa regime which will not permit the employee to stay beyond 6 to 7 years. Hence, there is a complete loss of contribution for the large number of expatriate workers in US.
Australia: The negotiations between India and Australia will be finalized by the end of this year so that they can ink the agreement as early as possible.” However, students doing part-time jobs in Australia or Western countries are not covered under the social security accords.
Sweden: No official news is available on signing of India-Sweden bilateral agreement. However, it is mentioned in the Deccan Herald, that India is on a move to sign an agreement with Sweden.
The conclusion of SSA and interpretation on the new guidelines on Employees Provident Fund and Pension scheme are still evolving and there are lot of open questions such as Applicability to the establishment, Employer-employee relationship under secondment arrangements, contrary position of employer under Income tax and Employees Provident Fund Act, pension workings etc. which needs to be addressed. Realistically, the SSAs may take a long time before they are effective and until then the cost of the assignment of the expatriates in India/overseas along with the compliance requirements is likely to increase.