A social security agreement is a reciprocal arrangement that prevents double payments to the social security systems of the two countries involved. When a country signs an SSA with India, the workers from that country automatically become excluded workers under the EPFO, and are spared from making contributions to the Indian fund. Similarly, Indians working in that country are exempted from contributing to the local social security system if they are already making payments to the EPFO at home.
SSAs under negotiation and awaiting ratification
Announced on 1 October, and effective 1 November, 2008, international workers may export, or transfer back, their contributions only to countries with which India has signed SSAs. Currently only Belgium, France and Germany have signed SSAs. However, these agreements are not yet effective as they await national ratification. This means that Indians working in these countries will not be treated as international workers for the time being.
India has been looking at entering into totalisation agreements with several countries where a sizeable number of Indians work. Negotiations are at various stages with the Netherlands, Czech Republic, Hungary, Norway, Switzerland, Sweden, Luxembourg, the US and Australia. Indian officials claim that some countries, including the US, have raised concerns about India’s lack of social security schemes, as well as questions about the lack of regular social security payments to citizens in India. The officials dispute the validity of these claims, however.
Major impact in the US
Indians working in the US contribute to the American social security system, but cannot automatically take the money back to India when they return. The Indian government estimates that around 80,000 employees from India, mostly working in technology companies and projects in the US, contribute at least USD 1.5 billion (RS 7,200 crore) annually to the US social security system. Most of these employees are on short-term work visas.
India, on the other hand, has so far not placed any restrictions on foreigners taking contributions back to their home countries when they leave, irrespective of how long they have worked in India. Also, until now, foreign citizens in India as well as Indian citizens working overseas, have not had to contribute to India’s EPFO if they are contributing to such funds elsewhere. With the new rules now in place, Indian officials are hoping that these will encourage countries that send large numbers of short-term employees to work in India to sign an SSA.
Within India, it is mandatory for all Indian workers and their employers in the organized sector, estimated to be about 40 million, to contribute a combined 24% of salary to EPFO.
New definition of pensionable salary for foreign employees
A further change announced on 1 October, 2008, re-defined pensionable salary for foreign or international employees contributing to the Employees Provident Fund Organisation (EPFO). Pensionable salary is now the average monthly pay drawn during the entire contributory period of service, instead of the average of the last 12 months’ salary. This change has been made in order to avoid manipulation of the system by raising salaries in the last year of employment.