Some allowance for foreign workers

In October 2008, it was made mandatory for international workers to contribute to Indian social security schemes. “International worker” means an Indian employee working, or having worked, in a country with which India has a social security agreement (SSA), or a foreigner working in India in an establishment covered by the Provident Fund Act. However, international workers contributing to the social security programme in their home country, and certified as such by a detachment certificate for a specified period in terms of the SSA, are “excluded employees”.

The list of ‘excluded employees’ has been expanded to include international workers from a country with which India has a bilateral comprehensive economic agreement (BCEA) prior to October 1, 2008, and who contribute to the social security schemes of their home country as a citizen or resident. India has a BCEA with Singapore — hence, employees who are natural persons of Singapore coming on a temporary basis to an establishment in India need not contribute to PF if they contribute to social security schemes back home.

Hitherto, international workers could withdraw their PF contributions on retirement, any time after completion of 58 years, or on account of permanent incapacity to work due to physical or mental infirmity.

Now, international workers from countries with which India has SSA may withdraw their PF accumulations on cessation of service. Furthermore, the PF amount owed to international workers could be paid directly to their bank account or through the employer. These changes, incorporated through a recent notification under the PF Act, would mitigate the hardships faced by international workers who have closed their bank accounts in India. Also, the provision that PF accounts will become inoperative three years from the date the PF contributions become payable shall not apply to international workers. Hence, they will continue to earn interest till the PF amount is withdrawn.

The Employees’ Pension Scheme has been amended to clarify that the service period of an international worker (covered by an SSA under a social security programme of another country) will be added to his service in an establishment in India covered by the PF Act for determining eligibility for pension. However, in determining the quantum of pension, only the service period in an establishment covered by the PF Act will be considered.

According to the Act, provident fund is payable on basic wages, dearness allowance (including the cash value of food concession) and retaining allowance. However, house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable and presents made by the employer were specifically excluded from the purview of PF contributions.

In its internal guidelines dated November 30, 2012, the PF Office clarified that “basic wages” should be interpreted to include all allowances other than those specifically excluded, namely house rent allowance, overtime allowance, bonus, commission and other allowances in the nature of commission. Thus, “any other allowance” (excluded from base pay for PF) could not be considered as exclusion for all other allowances than those specifically excepted. It was clarified that commission or any other allowance is one continuous term meaning “commission” or any other commission-like allowance. However, on account of a number of representations/ petitions from corporates and chambers of commerce, the EPFO through a notification dated December 18, 2012, has kept the circular in abeyance.

Ajay Nahata is Manager, Deloitte Haskins & Sells

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