India is thinking of barring international workers from partially withdrawing social security contributions like Employees’ Provident Fund (EPF) deposits before reaching the largely accepted retirement age of 58 to plug a drain on funds and push countries to sign totalisation agreement with India.
The move is aimed at countries with which India does not have a social security agreement (SSA), popularly called totalisation agreement. A totalisation agreement is key to avoid double taxation on professionals who work in other countries. India has been arguing that while international workers are allowed to withdraw up to 90 percent of their social security deposits in India, Indian workers like IT professionals working abroad face double taxation and cannot access their contributions to retirement funds while coming back.
The restriction, the government believes, will check the drain of funds and promote bilateral agreements. India has bilateral SSA agreements with 20 countries including Germany, France, Australia, South Korea and Japan. It is yet to enter into a similar agreement with several other countries including the US, despite years of negotiation.
“Of late, it has been noticed that a loophole that could not be envisaged has been used to withdraw funds before attaining the age of 58 years, using various provisions of the advances under the EPF schemes. For example, international workers from non-SSA countries can withdraw up to 90 percent of their PF balances as partial withdrawal under para 68B of the EPF scheme,” a document prepared by the Union labour ministry-controlled Employees’ Provident Fund Organisation (EPFO) said.
“This above practice defeats the very purpose of encouraging SSAs on a reciprocal basis between countries, thereby hurting the long-term goal of the Government of India in protecting the rights of Indian citizens so that they are not at a disadvantage when abroad and contributing well to their economies,” said the documents, a copy of which has been reviewed by Moneycontrol.
The issue was taken up at the recent board meeting of the EPFO, which suggested that amending the EPF scheme by inserting a new clause called “Para 68P” can serve the purpose underlining that “international workers from the non-SSA countries shall not be eligible for withdrawals and advances” under several clauses “that allow partial withdrawals”.
The government document underlines how Indian workers while taking up employment abroad are mandated to get social security contributions deducted in the countries of their posting, but the contribution is locked in for a certain number of years.
“It is seen that a large number of Indians are deputed for shorter periods and, hence, are unable to complete the qualifying prescribed period. Consequently, the social security benefits/money in lieu of the contributions made are forfeited. This leads not only to the loss of their hard-earned money but also social security cover,” the government document underscored.
The EPFO meeting agenda also stressed that “international workers from the non-SSA countries shall not be eligible for withdrawals and advances” under several clauses “that allow partial withdrawals” on account of children's education, buying house, certain illness, etc.
Michael Dias, a board member of the EPFO, confirmed that such an item was on the agenda tabled at the meeting. “During the meeting I said, the issue needs to be thoroughly discussed before any decision is taken. And also, the EPFO and the labour ministry must seek responses from the Union law ministry to avoid any discrimination,” said Dias, who is also managing partner of Michael Dias & Associates, a law firm.
“Some views have come and the issue will be deliberated in detail further,” said a government official who asked not to be identified. The person, however, underlined that SSA is a requirement and the government has every right to protect the interest of its citizens working abroad.
According to a 2020 report by the Confederation of Indian Industry (CII) and the United States India Business Council (USIBC), Indian companies operating in the US pay approximately $1 billion towards social security in that country, which is only redeemable after 10 years.
“Since the typical term of a temporary high-skill visa holder is 3–6 years, most workers are unable to derive any benefits. The U.S. view is that due to the incompatibility of the two social security systems, the Totalization Agreement may not be plausible in the current context,” CII-USIBC has said in the report published in February 2020.
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