News › Weekly Alert Article

Changes to Provident Fund & Pension Schemes

India

In October 2008, the Ministry of Labour and Employment made fundamental changes in the Employees Provident Fund Scheme "EPF" and Employees Pension Schemes. The ambit of both the schemes was broadened to compulsorily cover International Workers "IWs" under the purview of India's social security regime. The schemes were amended in September 2010, and rules relating to Provident Fund contributions and withdrawal by IWs, upon attainment of 58 years of age were introduced. Taxand India assesses the internal guidelines document issued to see how these aspects have been addressed.

Summary of clarifications provided by the EPFO
An Indian employee attains the status of IW only when he becomes eligible to avail benefits under the social security programme of the host country (ie foreign country). However, where an Indian employee holds a Certificate of Coverage "COC", such employee gets exempted from contributing to host country's social security system with which India has an SSA, thus making him ineligible to avail benefits of the host country's social security programme. Hence, such an Indian employee holding a COC may not qualify as an IW as per the revised definition prescribed in the latest FAQ.

Eligibility for becoming a member of the Provident Fund
All establishments covered / coverable under the EPF Act (including the establishments exempted by the appropriate government by notification in the Official Gazette) employing IWs shall be covered.

Taxand India provides a more in-depth look at changes to provident fund and pension schemes

Taxand's Take


The recent clarifications issued by the Ministry of Labour and Employment seem to have clarified and reinstated the specific nuances associated with the regulations surrounding the "IW". The definition of IW has been modified to include only those Indian employees, who are working in a foreign country with which India has entered into a SSA and being eligible to avail the benefits under social security programme of the host country. This has resulted in exclusion of those outbound Indian workers holding COC and who are exempt from host country's social security programme from the scope of an IW.

Another welcome measure adopted in the current regulation is that the provision of 'inoperative accounts' shall not be applicable to IWs. The recent clarification issued is another step forward in making the complex regulations more simplified. With regular updates and clarifications being issued the other practical issues and roadblocks being faced by IWs may also get streamlined in due course.

Your Taxand contacts for further queries are:
Mukesh Butani
T. +91 124 339 5010
E. mukesh.butani@bmradvisors.com

Nitin Baijal
E. nitin.baijal@bmradvisors.com

 

Taxand's Take Author