Provident Fund for employees going overseas

Written by Puneet Gupta | Updated: Jun 19 2012, 06:11am hrs
The special provisions in the Provident Fund law for International Workers were first introduced in October 2008. The definition of International Workers was divided into two parts one applicable for Indian employees going overseas and another for foreign nationals coming to India. Though there has been no change in the definition of International Worker under the law since then, there have been frequent changes in the interpretation by the Employees Provident Fund Organisation (EPFO) on the definition as applicable to Indian employees going overseas.

In the first set of FAQs issued by the EPFO in 2009, it was clarified that an Indian employee working abroad in a country with which India has entered into a social security agreement is an International Worker. Then, on August 30, 2011, a circular was issued by the EPFO, which clarified that an Indian national is to be treated as an International Worker, with effect from the date of commencement of the certificate of coverage issued by the EPFO. For the benefit of readers, a certificate of coverage issued to an Indian employee going overseas is a confirmation of continued coverage from the EPFO, which entitles such an employee for exemption from the overseas social security.

The above circular seems to suggest that only those employees who obtain certificate of coverage from the EPFO will be classified as International Workers. International Workers are subject to a higher allocation of contributions towards the Pension Scheme and restrictions on withdrawal from the Provident Fund Scheme, until retirement after attaining 58 years of age. Consequently, most Indian employees who went on overseas assignment avoided obtaining certificate of coverage from the EPFO to stay out of the International Workers categorisation.

Now on May 25, 2012, the EPFO has issued a fresh set of FAQs and a circular, which reflect a major change in their view and completely overturns the earlier position. As per the latest clarification, the category of International Workers comprises only those Indian employees who are employed by an Indian employer and have contributed to the social security of host country, which has a social security agreement with India, and are eligible for social security benefits in the host country under that social security agreement.

Thus, if the employee has obtained a certificate of coverage in India and is exempt from overseas social security, then such an employee will not be entitled to social security benefits in the overseas country and, therefore, not fall under the category of International Worker. This will ensure that Indian employees who go on overseas assignment obtain certificate of coverage in India, claim exemption from overseas social security and are not classified as International Workers. Though there are many open issues, the recent FAQ is a quick fix solution to reduce the hardship caused to Indian outbound employees when designated as International Worker.

The writer is senior tax professional, Ernst & Young. Views are personal