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Readjustment of Excess in Pension Funds

19 Sep 2012
In October 2008, the Ministry of Labour and Employment (MLE) made fundamental changes in Employees Provident Fund Scheme (EPFS) and Employees Pension Schemes (EPS). The ambit of both the schemes was broadened to cover International Workers (IWs) under the purview of India's social security regime. Taxand India investigates into the recent changes made to these schemes.

As part of the schemes all Indian outbound employees posted to countries with which India has signed a Social Security Agreement (SSA) were also treated as IWs. Such IWs, in order to be exempt from contributing to the social security in the foreign country, were required to obtain a Certificate of Coverage (COC) from the Indian Provident Fund (PF) authorities.

However on 25 May 2012, the EPFO issued a circular notifying that a detached Indian employee obtaining a COC and responsible for contributing to social security system in India, would not fall under the category of IW.

The EPFO has now issued another Circular in order to provide greater clarity on the matter. This stated that Indian outbound employees with COC do not fall under the purview of IW, and contribution in respect of such employees, would be governed by normal provisions as applicable to any other Indian employee.

Discover more: Readjustments of excess amount in pension funds

Taxand's Take

This is positive news for multinationals headquartered in India, as it will simplify how their locally sourced employees are taxed on a global scale. It should be noted that the Circular does not comment on accrual of any interest on the excess contributions lying in the Pension fund account, which would have otherwise been earned by the employee if such excess contributions were lying in his PF account. This is an open area and the PF authorities may come up with a clarification on the same at a later stage.

Your Taxand contact for further queries is:
Mukesh Butani
T. +91 124 339 5010

Taxand's Take Author