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Indian social security

For cross-border assignments

October 2011
Foreword
Foreign assignments are often challenging because they involve not only entering into a
new tax system but also negotiating the social security structure in the country in question.
Every country has its own set of social security regulations for employees working within its
territory. India introduced compulsory social security regulations for cross border workers
for the first time in October 2008. These regulations are still evolving and the authorities
have issued several clarifications since their introduction. This guide is designed to help
employers and cross border workers understand:
• the social security system in India and its various compliance requirements;
• the benefits available under social security agreements; and
• other matters which need to be kept in view.

This booklet contains details of the social security law and practice in India currently
applicable to cross border workers, compiled by a team of specialists within the
PricewaterhouseCoopers, International Assignment Services (IAS) practice. We invite
you to contact us for further details. Our specialists will be pleased to provide advice and
assistance tailored to your specific requirements.
Addresses of PricewaterhouseCoopers offices in India are provided in Appendix D of this
publication.

Kaushik Mukerjee Kuldip Kumar

Leader Executive Director
International Assignment Services PwC India
PwC India
Contents
Section 1: The Indian social security system for cross border workers 4

Section 2: Benefits of social security agreements 7

Section 3: Compliance requirements 9

Section 4: Other matters 11

Appendix A: Social security agreements 13

Appendix B: Non compliance penalties 14

Appendix C: Important contact details and useful web links 15

Appendix D: Contacts 16
Section 1
The Indian social security system for cross border workers

4 PwC
Introduction ambit of the EPF and EPS. Prior (c) he or she enjoys the status
to this amendment, such workers of ‘detached worker’ for the
The Indian social security
used to qualify for exclusion from period, and according to
system provides retirement and
the provisions of the Indian social the terms, specified in the
insurance benefits to employees
security regulations and were relevant SSA.
working in factories or other
not subject to the Indian social Contributions
establishments covered by the
security system.
system, in India. The system An international worker is required
is governed by the Employees’ International worker to contribute 12% of his/her salary
Provident Fund and Miscellaneous A foreign national qualifies as to the social security system. The
Provisions Act 1952 (PF Act) and an ‘international worker’, if term salary is broad and covers
the schemes made there under, he/she is coming to work for basic wages (all emoluments paid
namely, the Employees’ Provident an establishment in India to or payable in cash while on duty
Fund Scheme (EPF) and the which the Indian social security or on leave/holiday), dearness
Employees’ Pension Scheme regulations apply. allowance, retaining allowance
(EPS). The Employees’ Provident and cash value of any food
Fund Organisation (EPFO), a Similarly, an Indian national
concessions. However, house rent
statutory body established by the qualifies as an ‘international
allowance, overtime allowance,
government of India, administers worker’, if he/she has worked or
bonus, commission or any other
the social security regulations in is going to work in a country with
similar allowance or presents are
India. which India has entered into a
excluded from the salary figure
social security agreement (SSA)
Scope used to calculate contributions.
and is eligible to avail him /herself
Every establishment in India, of the benefits under the social Employers are required to deduct
employing 20 or more persons security programme of the host the social security contribution
is required to register with the country, according to the terms of from the employee’s monthly pay
social security authorities unless the relevant SSA. and, after making a matching
they are an exempt establishment. contribution of 12%, to deposit the
Exemption
An establishment employing less sum with the Indian social security
than 20 persons can voluntarily An international worker is authorities/ fund by the 20th day
opt to register with the authorities exempted from Indian social of the following month. A five day
for the welfare of its employees. security regulations where he grace period is included within
Upon voluntarily registration, the or she: this time limit.
provisions of the Indian social (a) is from a country with which Contributions are payable on the
security regulations apply in India has a reciprocal SSA; full salary where an international
exactly the same way as if such and worker is on a split payroll. For
registration were mandatory. converting foreign salary figures
(b) is contributing to his/her
In October 2008, the government home country’s social into the equivalent INR, the month
of India made the social security security, either as a citizen or end telegraphic transfer buying
scheme mandatory for cross resident; and exchange rate, as published by the
border workers by introducing State Bank of India, is to be used.
a new category of employee,
‘international worker’, within the
Indian social security 5
Employers’ contributions to Indian • Retirement from service in In all other cases, the employer’s
social security are not taxable the establishment or after contribution and interest earned
in the hands of international attaining 58 years of age, on that contribution (both on
workers. In relation to their own whichever is later. the employer and employee’s
contributions, international share) is taxable in the year of
• Retirement on account
workers can claim a deduction of withdrawal. Furthermore, where
of permanent and total
up to INR 100,000 an international worker availed
incapacity to work due to
per annum from their taxable of any deduction for his/her own
bodily or mental infirmity
income in India. contribution during the past years,
as certified by a prescribed
such deduction shall be taxable in
Allocation of contributions medical officer/registered
the year in which it is withdrawn.
practitioner,
From the employer’s 12%
Pension fund
contribution, an amount equal to • When suffering from certain
8.33% of the salary is allocated to diseases detailed in the terms Accumulated sums in the pension
the international worker’s pension of the scheme, fund are used to pay a pension to
fund and the remaining amount is employees upon retirement or in
• According to the provisions
allocated to the provident fund. certain circumstances as specified
specified in the relevant
in the EPS. International workers
The employee’s entire contribution SSA which covers the
are not permitted to withdraw
of 12% is allocated to the international worker.
from the pension fund unless they
provident fund. In cases where the international have rendered eligible service for
The accumulated balance in the worker is from an SSA country, a period of ten years. However,
provident fund earns interest at a withdrawal from the provident where international workers are
specified rate, which is announced fund must be carried out according covered under an SSA, withdrawal
by the government from time to to the terms of the relevant SSA. is possible earlier.
time. The government announced In all other cases, the amount
The monthly pension received
a 9.5% rate of interest for the year withdrawn will be credited to the
from the pension fund on
2010-11. international workers’ Indian bank
retirement is taxable as
account. Amendments have been
Interest that accrues on employment income. However,
made in the Indian regulatory
accumulated contributions commutation of pension payments
framework to permit international
(employers’ as well as employees’) are exempt from tax, subject to the
workers to open Indian bank
is exempt from tax. following conditions:
accounts in order to realise
Withdrawal benefits provident fund money. • In cases of a receipt of
The EPF and the EPS provide gratuity, the commuted value
Any lump sum withdrawn by
detailed rules for withdrawal of one third of the pension is
international workers from
benefits. exempt from tax.
their provident fund account
Provident fund on retirement or otherwise, • In other cases, the commuted
after completing five years of value of one half of the
An international worker can continuous service in a covered pension is exempt from tax.
withdraw their accumulated establishment in India or under
balance in the provident fund in other specified circumstances, is
the following circumstances: exempt from tax.
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Section 2
Benefits of social security agreements

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SSAs are bilateral agreements As at the current date, only Period covered by COC
between India and other countries the agreements with Belgium, The period covered by the COC
designed to protect the interests Germany, Switzerland, depends on the period of the
of cross border workers. They Luxembourg and France are international worker’s assignment
provide for avoidance of ‘no operational. The other agreements to the other country. The
coverage’ or ‘double coverage’ have not yet come into force. maximum duration for which the
and equality of treatment of the Certificates of coverage COC can be issued depends on the
workers of both countries. A (Detachment) terms provided in the SSA with
SSA generally provides for the the international worker’s home
following: A certificate of coverage (COC),
country. For instance, in the case
otherwise known as a ‘detachment
(a) Detachment: Applies to of the India Germany SSA, the
certificate’ must be obtained by
employees posted to the maximum duration for which the
an international worker to avoid
other country provided COC can be issued is 48 months.
double coverage. A COC will
they comply with the social be issued by the worker’s home
security requirements of their country’s social security authority
home country. in accordance with the provisions
(b) Exportability of pension: of the relevant SSA. The COC
Provision for payment of serves as a proof of detachment
pension benefits directly on the basis of which exemption
without any reduction to the from social security contributions
beneficiary choosing to reside or social security taxes in the
in his/ her home country or host country are available for
any other country. the period of detachment. For
example, a German national
(c) Totalisation of benefits: The
can apply for a COC from the
period of service rendered in
German social security authorities
a foreign country is counted
before being deputed to India to
when determining eligibility
work with an establishment to
for benefits. Benefits are
which the Indian social security
linked to the length of service,
regulations apply. This will exempt
on a pro rata basis.
him/her from contributing to
India has entered into SSAs with Indian social security for the
11 countries, as listed in Appendix period stated in the COC.
A. The government of India is
currently negotiating SSAs with
a number of other countries,
including Sweden, the USA,
Canada, Australia, and Japan.

Indian social security 8

Section 3
Compliance requirements

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Employer’s obligations Interest for non payment/ Non compliance penalties
short payment
Employers are under a legal Levy of damages
obligation to deduct the Where any employer fails to remit Where any employer makes
contributions and remit them a contribution or makes short a default in their payment of
with the Indian social security remittance of any contribution contributions to the fund, a default
authorities within the specified to the Indian social security in their transfer of accumulations,
time frame, as explained in the authorities/ fund, interest at the or a default in their payment of
previous section. rate of 12% per annum is payable applicable charges, the Central
from the date on which the Provident Fund Commissioner
Employers are required to file a
amount became due till the date of may recover from the employer, by
Form (IW-1) to report details of
actual payment. way of penalty, damages at the
their international workers on a
monthly basis. A ‘Nil’ return must rates given in Appendix B.
be filed in cases where there is Other consequences
no movement of international
workers. Employers are also In addition to the levy of damages
required to file monthly return detailed above, the employer
(12A) and annual return (Form and/or any other person may be
6A and 3A) within the prescribed penalised/ prosecuted where that
time frame. employer and/or person commits
any of the offences summarised
in Appendix B. An opportunity
of being heard is provided before
any penalty is imposed and/or
prosecution is initiated by the
authorities.

Indian social security 10

Section 4
Other matters

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Equalisation policies
The social security regulations are
designed to protect the welfare
of employees. Under the Indian
social security regulations it is
illegal to enter into an agreement
with employees to reduce their
salaries in order to provide
social security benefits and/or
otherwise to recover/claim the
social security benefits from
employees. Employers need to be
careful particularly where foreign
nationals are covered under the
equalisation policies and may
require to define the process
appropriately to avoid any legal
violation in India.
Tax and other considerations
Obtaining a COC may help
to optimise social security
contributions, but it may also have
tax ramifications in India. The
presence of foreign nationals as
employees of a foreign company
may result in a permanent
establishment risk for the foreign
company. Assignments needs to
be structured and documented
appropriately to keep in view
social security, income tax, and
regulatory considerations, in order
to be compliant with Indian law.
Appendix A
Social security agreements

Sl. No. Name of countries Status

1 Belgium Operational from 1 September 2009

2 Germany Operational from 1 October 2009

3 Switzerland Operational from 29 January 2011

4 Luxembourg Operational from 1 June 2011

5 France Operational from 1 July 2011

6 Netherlands Signed on 22 October 2009. Not yet operational.

7 Denmark Signed on 17 February 2010. Not yet operational.

8 Hungary Signed on 3 February 2010. Not yet operational.

9 The Czech Republic Signed on 8 June 2010. Not yet operational.

10 Korea Signed on 19 October 2010. Not yet operational.

11 Norway Signed on 29 October 2010. Not yet operational.

Indian social security 13

Appendix B
Non compliance penalties

Rates of damages
Period of default Rate of damage *
(% of arrears per annum)
Less than two months 5%
Two months and above but less than four months 10%
Four months and above but less than six months 15%
Six months and above 25%

* The damages shall be calculated to the nearest rupee and are levied simultaneously along with interest for
non payment or short payment of contributions as explained above.

Penalties and prosecution

Nature of offence Person Consequences
liable
Default in relation to the payment of contributions (or Employer Where the default is in relation to payment of the
administration charges or inspection charges) towards employee’s contribution which has already been
the provident fund according to the provisions of the deducted by the employer from the employee’s
PF Act. wages. –Imprisonment for a minimum term of
one year (which may be extended to three years)
together with a fine of INR 10,000.
For all other cases Imprisonment for a minimum
term of six months (which may be extended to
three years) together with a fine of INR 5,000.
Default in relation to the payment of contributions Employer Imprisonment for a term not less than six months
(or inspection charges) towards the Deposit linked which may be extended to one year and a fine of
Insurance scheme. up to INR 5,000.

Making a false statement or misrepresentation to avoid Any person Imprisonment up to one year or fine of INR 5,000
any payment towards the provident fund, pension fund or both.
or deposit linked insurance fund.
Contravention/default in complying with any of the Any person Imprisonment for up to one year or fine of up to INR
provisions. 4,000 or both.
Contravention/default in complying with any Any person Imprisonment for a term not less than one month
provision of the PF Act where no other penalty is which may be extended up to six months and a fine
provided elsewhere in relation to that non compliance. of up to INR 5,000.
Appendix C
Important contact details and useful web links

Head office
Bhavishya Nidhi Bhawan,
14, Bhikaiji Cama Place,
New Delhi – 110 066
Central Provident Fund Commissioner
Phone: 011 – 26172671
Email: [email protected]
Regional Provident Fund Commissioner
(International Workers Unit)
Phone: 011 – 26172668
Email: [email protected]

Useful links
Employees’ Provident Fund Organisation (EPFO)
www.epfindia.com
Ministry of Labour, Government of India
www.labour.nic.in
Ministry of Overseas Indian Affairs, Government of India
www.moia.gov.in
Frequently Asked Questions (FAQ)
http://www.epfindia.com/faq_IntWorker.pdf

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Appendix D
Contacts

Bangalore Kolkata
Millenia, Tower D, 6th Floor Plot No. Y 14, Sector V,
1&2 Murphy Road Salt Lake Electronics Complex,
Ulsoor, Bangalore 560 008 Bidhan Nagar, Kolkata 700 091
Tel : +91 80 4079 6002 Tel: +91 33 2357 9100/2357 3384
Fax : +91 80 4079 6222 Fax: +91 33 2357 3394
Contact Person: Kaushik Mukerjee Contact Person: Somnath Ballav
Email: [email protected] Email: [email protected]
Delhi NCR Hyderabad
Building No. 10, Tower C # 8 2 293/82/A/1131A
17th & 18th Floor, DLF Cyber City, Road No. 36
Gurgaon, Haryana 122002 Jubilee Hills, Hyderabad 500034
Tel: +91 124 330 6000 Tel: +91 40 66246600
Fax: +91 124 330 6999 Fax: +91 040 66246400
Contact Person: Kuldip Kumar Contact Person: R. D. Hingwala
Email: [email protected] Email: [email protected]
Mumbai Chennai
PwC House, Plot 18/A 32, Khader Nawaz Khan Road
Guru Nanak Road (Station Road), Nungambakkam,
Bandra (West) Chennai 600 006
Mumbai 400 050 Tel: +91 44 4228 5000
Tel: +91 22 66891000 Fax: +91 44 4228 5100
Fax: +91 22 66891888 Contact Person: K Venkatachalam
Contact Person: Nikhil Bhatia Email: [email protected]
Email: [email protected] Pune
Ahmedabad GF 02, Tower C
President Plaza, Ist Floor Panchshil Tech Park
Opposite Muktidham Derasar Don Bosco Road, Yerwada
S.G. Highway, Thaltej Pune 411 006
Ahmedabad 380 054 Tel: +91 20 4100 4444
Tel: +91 79 30917000 Fax: +91 20 4100 4599
Fax: +91 79 29090007 Contact Person: Sandip Mukherjee
Contact Person: Mayur Desai Email: [email protected]
Email: [email protected]

Indian social security 16

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Contributors:
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Executive Director Associate Director Manager
[email protected] [email protected] [email protected]
Phone: +91 (124) 3306516 Phone: +91 (22) 66891330 Phone: +91 (124) 3306794
18 PwC
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NJ 238 October 2011 Social Security.indd

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