www.pwc.com/in Sharing insights News Alert 6 September, 2011 EPFO releases Guidelines/clarifications on Indian Provident Fund and Pension Scheme applicable to International Workers In brief In October 2008, the Government of India made it compulsory for international workers ( IWs ) to contribute to Indian social security. Further, in September 2010, the Government of India amended the provisions relating to contribution and withdrawal by the IWs. In order to clarify certain unclear aspects of the new regulation, the Employees Provident Fund Organization ( EPFO ) issued Frequently Asked Questions in May 2011. Now, EPFO has released further instructions/clarifications 1 to provide more clarity for compliance by its regional offices. These are summarised below. Key Instructions/Clarifications The employer needs to calculate the contribution on the full salary irrespective of the place of its payment. With effect from 11 September 2010 the employer is to contribute to the Pension Fund the amount of 8.33 percent of the salary, i.e. the salary cap of INR 6,500 per month is not applicable to IWs with effect from 11 September 2010. 1 http://www.epfindia.com/circulars/y2011-12/compliance10235.pdf 1
Indian nationals are to be treated as IWs with effect from the date of commencement of the Certificate of Coverage ( COC ) issued by EPFO, Head Office. Such member will continue to be an IW till the final settlement is made in accordance with the provisions of the scheme. For obtaining COC, the employee is required to submit an application in the prescribed format through his/her employer to the local Regional Provident Fund Commissioner ( RPFC ), who in turn, after due verification of records, forwards it to the International Worker s Unit ( IWU ) at Head Office for issue of COC. No provident fund claim, other than that covered under specific provisions of the relevant social security agreement ( SSA ), is settled before the employee attains the age of 58 years, except in the case of retirement on account of permanent and total incapacity for work due to bodily or mental infirmity. Only those IWs who are covered under the provisions of the relevant SSA and not the other foreign IWs would have the withdrawal benefit under the pension scheme. In order to avoid mismatch between the IWs reported in the MIS return and the COC issued by EPFO, all RPFC Offices to ensure that the special provisions relating to the IWs should also be followed by the exempted establishments. Detailed instructions/clarifications The detailed instructions/clarifications released by EPFO to its regional offices are tabulated below for your reference: 1. Coverage With effect from 1 November 2008, every IW (as defined in Para 83 of the EPF Scheme, 1952), other than an excluded employee, is required to be a member of the Employees Provident Fund. As on date, SSAs in respect of five countries have been made effective from the date indicated below: Belgium 1 September 2009 Germany 1 October 2009 Switzerland 29 January 2011 Luxembourg 1 June 2011 France 1 July 2011 2. Contribution The contribution in respect of all IWs is payable on the full salary, irrespective of where the salary is paid. Prior to issue of the notification dated 11 September 2010, diversion of 8.33 percent from the employer s share of the contribution to the Pension Fund was restricted to the wage ceiling of INR 6,500 only. However, with effect from 11 September 2010, the 8.33 percent diversion to the Pension Fund is calculated on the full salary (i.e. not restricted to the ceiling of INR 6,500). 2
3. Compliance For the purpose of compliance, the first step is the identification of all IWs. The IWs include Indians as well as foreigners. The Indian nationals are to be treated as IWs with effect from the date of commencement of COC issued by EPFO, Head Office. The member will continue to be an IW till the final settlement is made in accordance with the provisions of the scheme. All foreign nationals employed in an establishment are to be enrolled as IWs, with the exception of those who fall under the category of excluded employee on the basis of COC issued by a competent agency under a SSA with India. Thus the category of IWs has to be flagged separately for identification for the purpose of compliance as well as settlement of their claims. Each office may maintain a separate register in respect of IWs. 4. COC A COC is issued in respect of an employee, who is posted for a short term assignment by his/her Indian employer to a country with which India has a SSA. For this purpose, the employee is required to submit an application in the prescribed format through his/her employer to the local RPFC, who in turn, after due verification of records, forward it to the IWU at Head Office for issue of COC. Based on the application, the Head Office issues COC to the concerned RPFC for handing over to the employer. This comes after flagging the account as an IW account for monitoring 5. Settlement of claim in respect of IWs compliance in respect of contributions as per the statutory provisions, as well for disbursement of benefits. As per the notification dated 11 September, 2010, an IW may withdraw, in accordance with Para 83, the full amount standing to his/her credit in the fund in the following circumstances only: (i) On retirement after attaining the age of 58 years. (ii) On retirement on permanent disability due to bodily or mental infirmity (includes tuberculosis, leprosy and cancer). (iii) On the grounds specified in the SSA. In view of the above rules, employer should ensure that no provident fund claim of an IW, other than that covered under specific provisions of SSA, is settled before the employee attains the age of 58 years, except in the case of retirement on account of permanent and total incapacity for work due to bodily or mental infirmity. The withdrawal benefit under the Employees Pension Scheme, 1995 is available to only those IWs who are covered under the provisions of the relevant SSA and not to other foreign IWs. 6. Others It may be appreciated that the issue relating to IWs is an important one calling for meticulous 3
attention. On scrutiny of MIS returns, it is observed that due care/attention is required to maintain the records in respect of IWs, so that there is no mismatch between the IWs reported in MIS return and the COC issued by EPFO. In view of this, you are requested to ensure that the above mentioned instructions are followed scrupulously and the reports/returns in respect of IWs are received and scrutinised regularly to detect any evasion. In this regard, it has to be ensured that exempted establishments also follow the special provisions relating to IWs. Specific instructions may also be issued to the enforcement officers, who are now responsible for securing compliance pertaining to their respective areas. Conclusion The Indian social security regulations for IWs have been evolving since their introduction in 2008. Various amendments, guidelines and clarifications have been issued by the Government/EPFO to explain the provisions for better compliance with them. The issue of these instructions/clarifications internally is a step by the authorities to gear up for strict compliance and adherence to these regulations. 4
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