Expatriates working in India were brought under the ambit of the country’s social security law – the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) – in October 2008.
Foreign nationals employed with an establishment in India to which the EPF Act applies are required to make provident fund (PF) contributions. These employees contribute 12% of their basic salary to the Employees’ Provident Fund Scheme (EPFS) and employers are also required to make a matching contribution to the scheme. However, all expatriates or foreign workers are not required to make this contribution. A foreign worker, contributing to a social security program of his /her country with which India has entered into a SSA (Social Security Agreement) (and enjoying the status of a detached worker for the period and terms in the SSA) is not covered under PF regulation in India. PF rules for such excluded employee will be determined in accordance with the provisions of the existing SSA.
For those foreign workers to whom PF regulation applies, all allowance is treated as part of basic wage except for specified exclusions. For calculating PF contribution, the full salary of an expatriate is taken into account, irrespective of whether the salary is paid in India or overseas, or split between India and the source country, or multiple country sources.
There is no minimum period of stay in India or a minimum monthly wage threshold for attracting PF compliance for expatriates. The exemption from making contributions for employees earning more than INR 15,000 (about USD 230) per month is not applicable to expatriates.
Expatriates can claim their PF upon termination of their employment in India. If there is an SSA between India and the expatriate’s country (of which he is a citizen), withdrawal can be made per provisions of the SSA; in the absence of one, withdrawal can be made when the individual attains the age of 58. Hence, expatriates from countries which do not have an SSA with India will be unable to claim their PF at the end of their employment in India unless they are 58 years of age.
Employers with a global workforce should pay close attention to legal provisions, amendments and policy guidelines covering employment of foreign workers in India. Also, from the foreign employee’s or expatriate’s perspective, prior to taking up an assignment in India, tax laws, particularly the social security regime should be carefully examined.
Zeenat Phophalia, Esq., Senior Associate
(Keywords: Provident Fund, Expatriates, Social Security Agreement)