India and the UK have entered into a much-awaited agreement that will translate into significant savings for Indian employees and their employers.
India has recently signed a Free Trade Agreement (FTA) and a Double Contribution Convention (DCC) with the UK. The implications of the DCC both for the Indian employee working in the UK and the Indian employer sending the Indian employee to the UK are significant.
The signing of the DCC will end up helping Indian companies save a huge amount, as well as helping Indian employees see a lower deduction from their savings towards the compulsory social security scheme of the UK.
The UK mandates all employees and self-employed individuals to contribute a fixed amount of social security towards National Insurance. So, Indian employees in the UK are forced to contribute to both to Indian and UK social security schemes.
For the Indian employees, it was a kind of ‘double contribution’.
In India, employees contribute the mandatory 12% of their basic wages to the Employees’ Provident Fund. The employer also makes an equal contribution to the employee’s provident fund account. Of the employer contribution, 8.33% is diverted to the Employees’ Pension Scheme (EPS), subject to a cap.
Now, for the first time, India has secured an exemption for Indian workers who are temporarily in the UK and their employers from paying social security contributions in the UK for a period of three years under the Double Contribution Convention.
This exemption is expected to provide significant financial gains for the Indian service providers and enhance their competitiveness in the UK market, which would create new job opportunities as well as benefit a large number of Indians working in the UK.
India, the second largest investor in the UK, employs thousands of Indian workers, with the largest Indian workforce in the technology services sector. For Indian employees going to the UK on a temporary job assignment, there was a double contribution.
Going forward, temporary Indian workers in the UK are exempt from paying social security as they are unlikely to work long enough to qualify for a state pension.
Indian employees in the UK can claim exemption from social security contributions by obtaining a Certificate of Coverage from the Indian Provident Fund office.