1. Recent changes in PF law on international workers`
November 18, 2016

2. Agenda
PF law for international workers 1
Key changes and challenges 2

3. PF law for international workers

4. Snapshot of 2008 law for IW Scope Contribution Withdrawal
Date
Snapshot of 2008 law for IW
Scope
Contribution
Withdrawal
A new category of employees called “international workers” introduced in 2008
Term “international worker” defined to include:
Foreign national working for a covered establishment in India (India inbound)
Indian national proceeding to a foreign country with which India has a social security agreement (SSA) and entitled to avail its benefits thereof (India outbound)
“Excluded employee” definition introduced to include IWs from SSA countries who are holding Certificate of Coverage (CoC)
Destination India

5. Snapshot of 2008 law for IW Scope Contribution Withdrawal
Date
Snapshot of 2008 law for IW
Scope
Contribution
Withdrawal
Employer’s contribution was 12% of salary
Employee’s contribution was 12% of salary
Allocation to pension fund from employer’s contribution – 8.33% of salary (ceiling of INR 6,500 per month was applicable)
Destination India

6. Snapshot of 2008 law for IW Scope Contribution Withdrawal
Date
Snapshot of 2008 law for IW
Scope
Contribution
Withdrawal
Provisions as applicable to domestic workers were also made applicable to IWs and withdrawal possible:
On retirement from service after attaining the age of 55 years,
On retirement on account of permanent and total incapacity for work,
Immediately before migration from India for permanent settlement or employment abroad,
On termination from service in case of mass or individual retrenchment or under a voluntary retirement scheme,
After completing a period not less than 2 months from the date on which the member makes the application for withdrawal
Destination India

7. August 2014
Amendments so far..
November 2016
All0cation to pension fund made not applicable for IWs joining on or after September 1, 2014 with a salary of more than INR 15,000 pm
Early withdrawal permitted for all IWs who are from SSA countries (on completion of India assignment)
October 2012
Definition of excluded employee amended to include IWs from CECA countries
May
Nepalese or Bhutanese nationals to be considered as deemed Indian workers
Sept 2010
Mandatory PF contribution introduced for IWs
Restricti0n introduced on early withdrawal
Early withdrawal possible only if corresponding provisions provided in the relevant SSA
Pension contribution on full salary.
Govt’s contribution to IW’s pension fund discontinued
October 2008
Digital media • Future is now

8. Important guidelines & clarifications
January 2016
Online facility introduced for filing CoC applications
May 2014
October 2014
Fourth and Fifth set of FAQs released:
E-visa as a criteria for PF applicability removed
Provisions of inoperative accounts not applicable to IW
Guidelines issued for compliance of outbound assignees
Guidelines issued for accepting CoC applications at respective RPFC
August 2013
May / Nov 2012
Guidelines provided for disbursement of benefits to the IW’s overseas bank accounts (for SSA countries)
Clarifications issued post Sept 2010 notification for clarity on compliance for IW’s
August
Second/ third set of FAQs
released
Lump sum pension withdrawal for IW from SSA country rendering less than 10 years of service
May/ Dec
First set of FAQs for PF compliance for IW introduced
January 2009

9. Key changes & challenges

10. Excluded employee Change Impact Challenges
Date
Excluded employee
Change
Impact
Challenges
May Definition of ‘excluded employee’ amended to include individuals coming from a country with which India has entered a Comprehensive Economic Cooperation Agreement (CECA) on a date prior to October 1, 2008
CECA is a bilateral agreement between two countries aimed to strengthen bilateral trade and to avoid double coverage of social security
Singapore – only country with which India has entered CECA prior to October 1, 2008
Destination India

11. Excluded employee Change Impact Challenges
Date
Excluded employee
Change
Impact
Challenges
Resident or citizen of Singapore would be treated as excluded employee if contributing to home country social security
In May 2016, Singapore High Commission in India released bulletin for Singapore citizens regarding exemption from PF contribution effective January 1, 2016
Procedure to claim exemption has been outlined in the communication
Relevant documentation prescribed
Early withdrawal option extended to Singapore citizen (similar to IWs from SSA countries)
Destination India

12. Excluded employee Change Challenges Impact
Date
Excluded employee
Change
Impact
Challenges
Procedure to claim exemption not prescribed by EPFO
Should Singapore citizens working in India stop contributing from May 24, 2012 or January 1, ?
Para 69 covers IWs coming from SSA countries and not CECA. Whether option of early withdrawal available to Singapore citizens?
Destination India

13. Monthly pay for PF contribution
Date
Monthly pay for PF contribution
Clarification /case laws
Definition
Challenges
Section 6 of the PF Act - contribution is payable on following:
Basic wages,
Dearness allowance (including the cash value of any food concession), and
Retaining allowance (if any)
Section 2(b) of the PF Act - ‘Basic wages’ means all cash emoluments paid / payable to an employee but does not include:
Cash value of food concession,
Dearness allowance, house rent allowance, overtime allowance, bonus, commission or any other similar allowance,
Presents by the employer
Destination India

14. Monthly pay for PF contribution
Date
Monthly pay for PF contribution
Clarification / case laws
Definition
Challenges
There is no clarity on the term ‘any other similar allowance’ for exclusion from the definition of ‘basic wages’
The Supreme Court (SC) of India in the cases of Bridge and Roofs Co. Ltd. and Manipal Academy of Higher Education has held:
Whatever is payable in all concerns and earned by all permanent ‘employees’ is included
Where the payment is available to be specifically paid to those who avail of the opportunity is not basic wages viz. overtime payment, bonus etc.
Destination India

15. Date
Monthly pay for PF contribution Conflicting judgements by various courts and clarifications issued by EPFO (later kept in abeyance) on this issue:
March 2011:
Allowances (conveyance and special) included in ‘basic wages’- Madhya Pradesh HC - Montage Enterprises case
May 2011:
Circular issued to RPFs to check splitting of salary by employers to avoid contributions
June 2011:
Allowances (conveyance, education, special etc.) included in ‘basic wages’- Chennai HC-Reynolds Pens case
July 2011:
Allowances (HRA, washing and conveyance) not included in ‘basic wages’–Punjab & Haryana HC - G4S Securities case
Appeal filed by EPFO in Supreme Court against Punjab & Haryana HC’s ruling in G4S Securities case
December 2011:
Circular issued in May 2011 kept in abeyance
October 2012:
Allowances (Shift, LTA, special etc.) not included in ‘basic wages’–PF Tribunal - Supreme Industries case
November 2012:
Circular issued - ‘any other similar allowance’ to mean any other commission like allowance
December 2012:
Circular issued in November 2012 kept in abeyance
Destination India

16. Monthly pay for PF contribution
Date
Monthly pay for PF contribution
Clarifications / case laws
Definition
Challenges
There is still no clarity on inclusion of allowances in the definition of ‘basic wages’
Although the circulars issued by EPFO were later kept in abeyance, field officers are still taking a view in line with the said circulars and require contribution to be made on allowances also
Destination India

17. Clarification / Change
Date
Outbound assignees
Clarification / Change
Impact
Challenges
Circular dated 20 January 2016:
Consolidated guidelines issued regarding compliance for outbound assignees
If going to a SSA country with CoC - Contribution on the same salary paid/payable immediately before proceeding to foreign country
If going to a SSA country without CoC or to a Non-SSA country - Contribution required if Indian salary paid /payable by the Indian establishment
Fundamental principle – If wages are neither paid/payable out of the books of the Indian establishment, then PF and other contributions are not to be deducted
Destination India

18. Clarification / Change
Date
Outbound assignees
Clarification / Change
Impact
Challenges
Outbound assignee to SSA country with CoC
Status of Indian employee will continue; to be governed by normal provisions
No change in contribution amount
Pension contribution based on maximum wage ceiling (INR 15,000)
Exemption from host country coverage
Outbound assignee to SSA country without CoC
Will qualify as IW (once an IW always an IW)
Special provisions applicable to IW would apply
Pension contribution on higher salary (without wage ceiling of INR 15,000)
Double coverage
Destination India

19. Clarification / Change Whether PF contribution required in India?
Date
Outbound assignees
Clarification / Change
Challenges
Impact
Situation #1
Mr. X, an Indian national employed with Indian company
Indian Co. sends him to its foreign group company in non SSA country (say the US)
Mr. X would work under direct control and supervision of foreign group company. The assignment duration is 3 years
Salary disbursement by Indian company and subsequently cross charged to the foreign group company
Whether PF contribution required in India?
Destination India

20. Clarification / Change Whether PF contribution required in India?
Date
Outbound assignees
Clarification / Change
Challenges
Impact
Situation #2
Indian company (HQ) have branch office (BO) in foreign country i.e. USA
HQ sends its employee to its BO. Salary is paid directly by BO to the employee overseas
At the end of the FY, books of BO ultimately merged with HQ
Whether PF contribution required in India?
Destination India

21. Clarification / Change
Date
Outbound assignees
Clarification / Change
Challenges
Impact
Indian national going to SSA country without CoC:
Once an IW always an IW? (Q. 22 of FAQs dated 19 November 2012)
Pension contribution on full salary? Whether wage ceiling of INR 15,000 will be applicable?
Whether withdrawal of contribution available only after attaining 58 years of age?
Destination India

22. Withdrawal provisions
Date
Withdrawal provisions
Change
Impact
Challenges
5 October Notification issued introducing the following amendments in PF scheme:
Para 69 amended to allow IWs from SSA countries to withdraw on completion of Indian assignment
Para 72 amended to allow IWs from SSA countries to receive accumulation directly in the bank account or through the employer
20 October Circular issued to allow IWs from SSA countries to receive accumulations in overseas bank account
Destination India

23. Withdrawal provisions
Date
Withdrawal provisions
Change
Impact
Challenges
IW from SSA country:
Provident fund: On completion of Indian assignment
Pension fund: Early lump sum withdrawal possible
Withdrawal in Indian bank account, overseas bank account and ‘through the employer’
IW from non-SSA country:
Provident fund: On retirement from service or attaining 58 years of age, whichever is later
Pension fund: Early lump sum withdrawal not possible
Withdrawal only in Indian bank account
Destination India

24. Withdrawal provisions
Date
Withdrawal provisions
Change
Impact
Challenges
Can a US national deputed from Australia to India withdraw contributions on completion of Indian assignment?
Can exempted establishments (companies having their own PF trust) transfer accumulations to IWs foreign bank account?
Can employees of exempted establishments (companies with their own PF trust) exercise withdrawal ‘through the employer’?
Destination India

25. Social security agreements
Date
Social security agreements
These are bilateral agreements to provide benefits of detachment, totalization of periods and exportability to cross-border employees
S.no
Country
Detachment period (months)
Exportability
Totalization
Allows to work in subsidiary/
affiliate in the host country 1
Belgium 60 a No 2
Germany 48 r 3
Switzerland 72 4
Luxembourg 5
France 6
Denmark
36/60
Yes 7
Korea 8
Netherlands 9
Hungary 10
Finland

26. Social security agreements
Date
Social security agreements
S.no
Country
Detachment period (months)
Exportability
Totalization
Allows to work in subsidiary/
affiliate in the host country 11
Sweden 24 a No 12
Czech Republic 60
Yes 13
Norway 14
Austria 15
Canada
No clarity 16
Australia 17
Japan (effective from 1 October 2016)
SSA with Portugal, Germany [Comprehensive] and Quebec not yet operational

27. Social security agreements
Date
Social security agreements
Practical challenges:
Terminology used in detachment clause of certain SSAs may support PE exposure for overseas entity in India
Gives impression that foreign national is working in India (with CoC) on behalf of overseas employer
Country
Extracts of detachment clause of few SSAs
Belgium
“…..…is posted by that employer in the territory of the other contracting state to work on its account……”
Switzerland
“An employed person…..and who is temporarily posted to the territory of the other contracting state to perform services for the same employer……”
France
“……is posted by that employer to the other contracting state to perform work on that employer’s behalf……..”
Destination India

28. Date
Other challenges
PF registration in absence of any base in India (deemed PE cases)?
PF on assignees claiming short stay exemption under tax treaty?
Social security equalization - any resolve?
Destination India

29. Date
Questions ?
Destination India

30. Thank you Kuldip Kumar kuldip.kumar@in.pwc.com About PwC
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