October 2012
HR and tax alert
India Early Provident Fund withdrawal permitted for International Workers covered under a social security agreement
Executive summary The Ministry of Labour and Employment has issued notifications (published in the Official Gazette on 5 October 2012) amending the Employees' Provident Funds Scheme, 1952 (“Provident Fund Scheme”) and Employees' Pension Scheme, 1995 (“Pension Scheme”) as applicable to "International Workers". As per the amended schemes: a) Overseas employees assigned to India who are classified as International Workers, from countries that have an active social security agreement with India, will now be allowed to withdraw their contributions (and interest) from the Provident Fund on the termination of their assignment to India. b) Withdrawal from the Provident Fund will be permitted through their employer. c) To determine their eligibility for benefits under the Pension Scheme, for International Workers covered under the social security agreement, "eligible service" will mean the period of coverage in India and the period of coverage under the relevant social security scheme of another country.
At present, India has eight social security agreements in force, with Belgium, Germany, Switzerland, Luxembourg, France, Denmark, Korea and the Netherlands. Key updates A. Early withdrawal from the Provident Fund Members covered under a social security agreement entered into between India and another country will be allowed to withdraw their contributions from the Provident Fund on ceasing to be an employee in an establishment covered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“Provident Fund Act”). The amendment will benefit foreign nationals who have contributed to the Provident Fund in India before the social security agreement between their home country and India came into force. Previously, International Workers were only allowed to withdraw from the Provident Fund in the following circumstances: i. On retirement after reaching the age of 58; ii. On permanent or total incapacity for work;
iii.
On such grounds as specified in the social security agreement.
Foreign nationals on assignment from countries with which India has not entered into a social security agreement will still be eligible to withdraw from the Provident Fund on retirement after reaching the age of 58. B. Withdrawal from the Provident Fund allowed through the employer The amount due to the individual in respect of their Provident Fund contributions will be payable to the individual’s bank account, either directly or through the employer. Previously, International Workers were required to hold an Indian bank account to claim a withdrawal from the Provident Fund. Therefore, it should no longer be mandatory for International Workers to hold an Indian bank account to claim the Provident Fund withdrawal, although this has not yet been confirmed. C.
Totalization of the period to determine eligibility for pension benefits As per the amended Pension Scheme, where members are covered by a social security agreement, the period of coverage under the relevant social security programme in the other country will be added to actual service and the aggregate of this will be treated as “eligible service”, as may be provided in the social security agreement. In respect of International Workers covered under a social security agreement, which contain provisions relating to “totalization of period”, the period of coverage in India and the period of coverage under the social security scheme of the other country will be aggregated in order to determine the eligibility for pension benefits. This amendment seems to benefit International Workers covered under a social security agreement where there is no provision for "totalization of period" – For example, agreements entered into by India with Germany, Switzerland and the Netherlands.
Next steps It is essential that employers from countries with which India has entered into social security agreements, who have sent employees to India, should review the changes to the Provident Fund Scheme and the Pension Scheme.
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In respect of all eligible employees who have paid contributions since November 2008 and have since finished their assignment in Indian, an application for the withdrawal of contributions from the Provident Fund should be made.
© 2012 EYGM Limited. All Rights Reserved. EYG no. DN0544
International Social Security Services Mike Kenyon Tel: +44 (0)20 7951 2583 email:
[email protected]
This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.
Gary Chandler Tel: +44 (0)20 7951 1280 email:
[email protected] Human Capital – India Sonu Iyer Tel: +91 11 4363 3160 email:
[email protected] Amarpal S. Chadha Tel: +91 80 6727 5258 email:
[email protected]
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