The Hindu Business Line : Expats in PF net

The Ministry of Labour and Employment has issued a notification, which may have far-reaching consequences on the social security regime in India. A special provision has been introduced in the Provident Fund (PF) regulations, creating a special category of international workers.

Roping in foreign workers

It is now mandatory for those employees qualifying as international workers to contribute to the Indian PF scheme. The employers would also be required to make an equal contribution. In this era of globalisation and cross-border movement of employees, these changes will increase the financial costs of an assignment.

The employees likely to be affected would include expatriates (foreign citizens) working in India and even Indian employees deputed to work abroad. With almost all expatriates being tax equalised, and the employer picking up their share of the contributions also, the expatriate assignment costs are going to increase even further.

The notification also requires the employers to file a consolidated return to the Provident Fund Commissioner on commencement of this scheme, indicating nationality, salary levels, etc., of each international worker and they would also be required to file monthly returns reporting changes.

A relief has been provided in this notification which exempts international workers from those countries with which India has signed Social Security Agreements, commonly known as Totalisation Agreements, and who have been contributing to their home country social security schemes.

India has currently finalised totalisation agreements with Belgium, France and Germany. The entire objective of such agreements is to ensure a level playing-field for mobile assignees. These agreements aim to protect the interests of Indian professionals by securing exemption from social security contributions in case of certain short-term assignments in the host country.

As a result, now Indian employees on short term international assignments (period specified in each agreement) who are contributing to Indian PF scheme would not be required to contribute to the social security schemes in the respective host countries.

Hazy areas

This notification leaves many questions in the minds of the employers and expatriates working in India.

The definition of international workers is subject to interpretation — for example, whether the term “Indian employee”, as included in the definition of international worker, refers to citizen/resident of India or any individual working in India.

Also, with different types of contractual arrangements, service responsibilities, and place of payment of the compensation, the quantum of salary on which the contributions will be based is also not quite clear.

India is likely to sign similar totalisation agreements with other countries as well for securing a better deal for Indian nationals working abroad. The recent amendment to the PF scheme is likely to lead many other countries to enter into totalisation agreements with India. Alignment with international social security laws may take time, but India has set the ball rolling in a big way.

(The authors are Mumbai-based chartered accountants.)

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