Summary

The central part of the Indian Social Security system is a provident fund (the EPF) which is primarily designed to deliver benefits that can be withdrawn at retirement age or in a limited range of other circumstances. The EPF is essentially a mandatory personal savings scheme.

Details

Contributions

Employer and Employee contributions to the Provident Fund are each 12%. For ‘International Workers’ there is no cap on the income subject to these contribution rates.

Treaties

India has a growing network of social security agreements which prevents provident fund contributions being levied. At the moment there are 20 agreements, including Canada, Australia, Germany and Japan. There is no agreement with the UK and while an agreement has been agreed with the US, it has never been ratified. Most agreements provide for up to five years of continued home country coverage.

Assignees to India from the US and, for the first year of their posting, from the UK, are therefore subject to contributions both at home and in India.

Exemptions

Participation in the social security scheme is mandatory for cross-border workers. A foreign national qualifies as an ‘International Worker’, and is therefore liable to pay contributions, if he is coming to work for an establishment in India which has more than 20 employees. Smaller enterprises may therefore be exempt from contributions.

Benefits

Aside from retirement benefits, EPF savings can be withdrawn in cases of hospitalisation, marriage and for some housing needs. Contributions to the EPF fund grow at a fixed rate of interest, currently over 8%.

Other

Employee provident fund contributions are tax deductible upto INR 150,000 (around $2,200).

Foreign nationals from social security agreement countries are eligible to withdraw their accumulated PF contributions on departure from India. Foreign nationals from non-agreement countries can only withdraw these contributions at the age of 58. Withdrawals can only be made to Indian bank accounts, which adds huge complexity to the process of getting contributions refunded.

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