Change Aims To Make US, UK Agree To Social Security Pacts
EXPAT workers can now withdraw their provident fund balances only on retirement at 58 years of age, a much tighter condition that the government hopes will put pressure on countries such as the US and UK to enter into social security agreements.
Expats workers could earlier withdraw their accumulated balances in the provident fund account at the end of their employment in India.
The new regulation will have far reaching consequences....Employers will face higher cost of sending employees to work in India.
However, the move will not impact expats from countries that have a totalisation or social security agreement with India, creating an incentive for other countries to sign similar agreements.
India has signed nearly 12 social security agreement but only two with Belgium and Germany are currently operational.
Indian workers are allowed to withdraw their PF balances under a number of circumstances, international workers will be only able to do so on retirement at 58 years against 55 years for local workers, according to the latest changes made through an amendment to the Employees' Provident Funds Scheme, 1952.
However, in the case of permanent and total incapacity to work due to metal infirmity withdrawal will be allowed.
Overseas workers will need to keep their bank account in India till the refunds are received in such account.
For example, an foreign worker who completes his employment in India at the age of 50 years will have his contribution blocked for 8 years and will have to keep his bank account open till then.
Foreigners will be happy leaving their funds in India, which will earn nearly 9% return against much lower they can get back home.
But there is a new rule expected to come into effect from next April as per which provident fund accounts inactive for than three years will not earn any interest. Once this rule come into effect this extra return will be available only for three years after an expat leaves India.
India had in 2008 made it mandatory for expats to contribute to employee provident fund and employee pension scheme, same as that for local workers.
Under these schemes an employee contributes 12% of his basic salary plus dearness allowance and his employer makes a matching contribution.
When an Indian company sends an employee on an assignment for 2-3 years, he and his employer have to contribute to the social security system prevalent in that country as also to provident fund back home.
This has been a big bone of contention between India and the US, and to some extent with the UK.
India has been for some time trying to convince the US and UK to enter into a totalisation agreement but no deal has been reached so far.
Totalisation or a social security agreement is a reciprocal program that prevents double payment to social security systems between countries.
While this puts an additional burden on an employer, it does not benefit the employee in any way as in most countries the minimum duration for deriving any benefit is 10 years.
According to estimates, Indian IT professionals in the US contribute close to $1 billion every year as social security taxes. So, over time, such developed countries end up collecting substantial amounts of tax from expat workers who derive no benefit from the proceeds of the tax whatsoever.
India hopes to get these countries to negotiation table by tightening its own rules, but the move has not gone down well with industry experts.
While India is asking for liberalised labour mobility across the world, it is making laws that clearly discriminate workers purely on ground of nationality.
