It is a general tendency of people that at the time of applying for assignments in foreign countries they only tend to pay attention to the tax laws of the country and manier times overlook the social security laws of the country. As per the Employees Provident Fund and Miscellaneous Act, 1952, every organization with 20 or more employees has to register with the national security system, which is managed by EPFO. Both employer and employee have to contribute 12% of the employee’s salary in the EPF account.
An IW (international worker) is an employee who is working with an organization in India which is registered under EPF or an Indian citizen who is working in a country with which India has a Social Security Agreement (SSA). Thus, each foreign employee who is employed in the organization which is registered under EPF shall have their provident fund account from the start of their employment.
The contribution in EPF accounts for foreign employees is the same as that of Indian employees, i.e., 12% of the salary. The IWs are exempt from making contributions in their EPF account only when their country has a Social Security Agreement (SSA), or economic bi-lateral treaty with India.
Social Security Agreement
The Indian Government has entered into SSA bi-lateral instruments with various countries to protect the interest of both employer and employee. Due to this, employers are saved from making double contributions to social security for the same employee. On the other hand, the employees get the pension from the country where they choose to live and are not required to remit contributions to their home country for getting the benefit of pension. Some notable benefits of bi-lateral social security agreements are:
- The SSA enables the remittance of social security contributions accumulated in a foreign country to India or any other country upon the relocation of the employee.
- In case an Indian employee is on a short term project in the country with which India has a social security agreement, then he is exempt from making any contribution in the social security of that country provided he is continuing to make a contribution in the social security system of India.
EPF Withdrawal Rules
The international worker can withdraw the contributions made in EPF account under any of the following conditions:
- In case of serious illness like cancer, tuberculosis, leprosy, etc.
- At the time of completion of his employment in India.
- Retirement due to permanent mental or physical incapacity to work.
- At the age of 58 or more, or at the time of retirement.
Withdrawal under EPS
Under the EPS scheme, there is only the employer’s contribution, so it does not recognize the employee’s contribution. Therefore, it does not entitle the international workers to receive the benefits when they are leaving India despite the accrued employer’s contribution.
As per the above discussion, it is clear that for International Workers, the refund of pension funds is available only when India and their country have entered into a Social Security Agreement. Thus, it is extremely challenging for people who belong to the country with which India does not have SSAs, and their pension funds are locked-up in India till the time they attain the age of 58 years. Also, the withdrawal of pension funds can be made only to an Indian account which makes the entire withdrawal process even more difficult.
Generally, when people take up assignments in the foreign countries, they only pay attention to the taxation system of the country and often overlook the social security system. In India, the social security system is implemented through the Employee Provident Fund Organization. Accordingly, every organization in India with 20 or more employees is required to register under EPF. In EPF, both employee and employer each contribute 12% of the employee’s salary into the EPF account of the employee monthly.
An individual of another country who is working with an organization in India which is registered under EPF and an Indian individual who is working in a country with which India has a Social Security Agreement, are called International Workers (IW). Due to this agreement the Indian worker can remit its pension contribution to India or any other country upon relocation to India or any third country.
An international worker can withdraw pension in any of the following conditions:
- At the time of retirement or after attaining the age of 58.
- In case of any serious illness like cancer, brain tumor, etc.
- After completing employment in India.
- In case of retirement due to any mental or physical incapacity of work.
The amount under EPS is contributed by the employer only. Thus, its refund is available only at the time of retirement and not when the worker is leaving India.