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: mkenyon@uk.ey.com
This publication contains information in
summary form and is therefore intended
for general guidance only. It is not
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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: gchandler@uk.ey.com
Human Capital – India
Sonu Iyer
Tel:
+91 11 4363 3160
email: sonu.iyer@in.ey.com
Amarpal S. Chadha
Tel:
+91 80 6727 5258
email: amarpal.chadha@in.ey.com
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