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Revised FAQs On Indian Provident Fund And Pension Scheme For International Workers

12 May 2011

In October 2008, the Ministry of Labour and Employment made fundamental changes in Employees Provident Fund ("EPF") and Employees Pension Schemes ("EPS"). The scope of both schemes was broadened to cover International Workers ("IWs"). The schemes were further modified in September 2010, and stringent rules relating to Provident Fund ("PF") withdrawal by IWs, upon reaching 58 years of age were introduced. Taxand India summarises the key changes.

The changes in the Scheme have raised a host of unaddressed issues, and to address some of these issues the Employee Provident Fund Organization ("EPFO") has recently released a revised set of Frequently Asked Questions ("FAQs") in order to update the earlier released FAQs in January 2009.

The following are covered:

  • Meaning of key terms
    • International worker
    • Excluded employee
    • Social Security Agreement ("SSA")
  • Eligibility for becoming a member of the Provident Fund
  • Applicability in different scenarios
  • Components of monthly pay (for the purpose of calculation of PF contribution)
  • Contributions to EPF, EPS and Employee Deposit Linked Insurance ("EDLI") Scheme
  • Status of Social Security Agreement
  • Benefits available under the Amended Pension Scheme
    • Benefit of reciprocity
    • Survivor benefits in absence of SSA
    • Pension withdrawal benefit for services less than 10 years under EPS
    • Conditions under which contributions shall be payable along with interest

Taxand's Take

Most of the aspects clarified in the earlier FAQs remain the same in the revised FAQ's.

However, one of the most significant clarifications which have now been provided is that while calculating employer's share of 8.33% for contribution to EPS, the salary cap of INR 6500 per month, has now been done away with in the case of IWs. This would result in higher allocation of funds towards pension scheme with restrictions placed on withdrawal of pension amount by IW coming from non-SSA country.

In the earlier set of FAQs, it was clarified that where IW is coming from a non-SSA country, whereby the domestic law of such country provided for an exemption from social security to Indian nationals working there, India shall also extend benefit of reciprocity to IW from that country. Such benefit of reciprocity was available only at the time of withdrawal of pension claim (not at the time of coverage). However, it has now been clarified in the revised FAQs that in the absence of SSA, benefit of reciprocity may not be available to IW at all.

There is an ambiguity in respect of foreigners employed directly by Indian establishment abroad as to whether they shall be covered by the local legislations abroad or by the social security regime in India.

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

Taxand's Take Author