Anshul Prakash and Kruthi N Murthy
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) is a welfare legislation enacted to provide social security to the employees in the form of retirement or old age benefits. Accordingly, the Government of India framed the Employee Provident Fund Scheme, 1952 (EPF Scheme) and Employees’ Pension Fund Scheme, 1995.
An employees’ provident fund was set up to which the employer and employee had to contribute a certain sum.
The EPF Act is applicable to establishments who employ a minimum of 20 employees and notified by the Central Government. However, apart from the employees working in India, the EPF Act and the EPF Scheme also cover International Workers (IW) within its ambit.An IW is:
Therefore, an Indian employee sent on posting to a country with which India has an SSA, or an employee coming to India to work from such a country, becomes an IW. Currently, India has operational SSAs with 18 countries and a bilateral comprehensive economic agreement with Singapore.
EPF contribution by Indian employees abroad
Indian employees qualifying as IWs, working in a foreign country are exempted from contributing towards social security schemes in such foreign country, if they satisfy the following two conditions:
India has an SSA with such foreign country; and if the IW obtains a Certificate of Coverage (CoC) from the EPFO.
After obtaining the CoC, Indian IWs are exempted from contributing to the social security system of the foreign country and are ineligible to avail the benefits under the social security schemes of that foreign country. However if an Indian employee is directly employed by a local employer in the foreign country, such an employee is covered by the foreign country’s legislation.
In the absence of an SSA with a foreign country, Indian employees who work in such foreign countries are required to make contributions to PF in India as well as of the foreign country. Similarly, Indian employees who do not obtain a CoC from the EPFO are also required to make contributions to Provident Fund in India as well as of the foreign country.
However, an Indian employee qualifying as an IW, for reasons of working/ having worked in a country with which India has an SSA, will reacquire the status of Indian employee upon repatriation to India after completion of an assignment in the foreign country. Accordingly, such employee will not be subject to the special provisions applicable to IW after returning to India.
EPF contribution of foreign nationals in India
An IW contributing to the social security programme of the foreign country in terms of the SSA signed between that country and India is exempt from making any contribution to PF.
Such an IW not making a contribution to PF is considered as a ‘detached worker’ for the purpose of compliance under the EPF Act and EPF Scheme.
Foreign employees who belong to countries with which India does not have an SSA and are engaged by an Indian establishment under an employment visa, will be deemed IW. They will also be required to make contributions to the PF.
Social security laws are an important consideration for corporations with a global presence. The SSAs ensures avoidance of contribution to social security schemes of both home and host countries, and aid in the withdrawal of accumulated EPF contributions.
However, there is still a grey area in law with regard to the determination of what constitutes salary for the purposes of EPF contribution as far as IWs (more importantly foreign employees) are concerned.
As per the provisions of the EPF Act, contribution needs to be made on the basic wage, dearness allowance, retainership allowance and cash value of food concessions (if any) paid to the employee.
Contribution to the Provident Fund by Indian employees can be capped at 12 percent of Rs 15,000 a month. There exists no such cap for foreign IWs, and they are required to make contributions on their entire salary. This is an additional burden on the employer as well as the foreign IW.
Clarity in respect of such differential treatment of Indian employees and foreign IWs is awaited from the concerned authorities. Also, withdrawal of accumulated contributions in the absence of a notified SSA is another significant area that needs clarification. This is due to the embargo the law imposes on a foreign IW against PF withdrawal until he attains the age of superannuation.
Prakash is partner and Murthy is associate at Khaitan & Co.Disclaimer: The views of the authors in this article are personal and do not constitute legal/professional advice of Khaitan & Co.