Fourth version of FAQs released for “International Workers”, covered under Indian Provident Fund and Pension regulations
Background
In October 2008, the Ministry of Labour and Employment made fundamental changes in the Employees Provident Fund Scheme and Employees Pension Scheme. The ambit of both the schemes was broadened to compulsorily cover International Workers (“IWs”) under the purview of India’s social security regime. Thereafter, the scheme has evolved through time to time amendments and clarifications brought in by notifications and FAQs released by the concerned Authorities.
Please find below links to our previous alerts capturing the key clarifications brought in by different FAQs released from time to time:
S No
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FAQ released in -
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Link to BMR’s tax alert
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1
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January, 2009
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2
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May, 2011
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3
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May, 2012
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The Employee Provident Fund Organisation (“EPFO”) has recently released an FAQ[1] (dated November 19, 2012). The latest FAQ retains most of the Q&As of the previous FAQ released in May, 2012 and has updated positions on some particular areas.
Key changes in the latest FAQ vis-à-vis previous FAQ dated May 25, 2012
Query 3 - Who is an 'excluded employee' under these provisions?
Updated answer – The earlier definition of excluded employee has been retained but has also been expanded to additionally include:
“…an IW, who is contributing to a social security programme of his country of origin, either as a citizen or resident, with whom India has entered in to a bilateral comprehensive economic agreement containing a clause on social security prior to 1st October,2008, which specifically exempts natural persons of either country to contribute to the social security fund of the host country (eg para 4 of Article 9.3 of CECA between India and Singapore provides that “Natural persons of either Party who are granted temporary entry into the territory of the other Party shall not be required to make contributions to social security funds in the host country).”
In other words the updated version also takes into cognizance agreements executed prior to commencement of the scheme covering IW’s.
Query 13 - What is a Social Security Agreement (“SSA”)?
Updated answer – “A SSA is a bilateral instrument to protect the social security interests of workers posted in another country. Being a reciprocal arrangement, it generally provides for avoidance of double coverage.”
The EPFO in all its previous FAQs had also included ‘equality of treatment’ as one of the general benefits provided by an SSA, however, the latest FAQ excludes the aforementioned clause.
Query 16 - Should the eligible employees from any country other than the countries with whom India has entered a social security agreement contribute as IWs?
Updated answer – “Each and every worker from a country not having either SSA or bilateral comprehensive economic agreement (referred to in answer under FAQ 3) with India has to be covered mandatorily.”
The EPFO has amended the response to the above query, to give a corresponding effect of amendment carried out in query 3 pertaining to scope of an ‘excluded employee’. The EPFO has thus clarified in the above response that all the eligible IWs covered under an SSA or a bilateral economic agreement (which is in force prior to October 01, 2008) may not be required to contribute as IWs in India.
Query 23 - Whether the IW will earn interest even after cessation of service after three years also in view of provisions of inoperative accounts?
Updated answer – “Since the provisions of inoperative accounts are not applicable in case of IWs, they will continue to earn interest till the amount of Provident Fund (“PF”) is finally withdrawn.”
The EPFO in its previous FAQ, had clarified that the IW shall earn interest up to the date when he becomes eligible for withdrawal (i.e. 58 years or otherwise), however the latest FAQ seems to suggest that an IW will be eligible for interest till the time he has not withdrawn the funds, irrespective of whether he has become eligible for withdrawal or not.
Query 24 - Under what circumstances accumulations in the PF account are payable to an IW?
Updated answer – “The full amount standing to the credit of a member's account is payable in the following circumstances:
(I) persons covered SSA –
on ceasing to be an employee in an establishment covered under the Act.
(II) persons NOT covered SSA –
(i) on retirement from service in the establishment at any time after 58 years of age;
(ii) on retirement on account of permanent and total incapacity for work due to bodily or mental infirmity, duly certified by the authorised medical officer;”
The EPFO in its previous FAQ, had clarified that a member covered under an SSA would be eligible to withdraw his PF accumulations, on such grounds as may be specified in that agreement till the time he/she avails the benefits under a social security programme covered under that SSA. This position was later amended by a recent notification (please refer link to our tax alert on this notification – click here to view tax alert), whereby all the IWs covered under an SSA are made eligible for withdrawal of their PF accumulations at the time of cessation of their employment with the covered establishment in India. The above FAQ 24 has been accordingly updated, to give a corresponding effect to this notification.
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