PF rules may be tightened to squeeze US expats

It’s a trade dispute with a difference. In an apparent move to help the country gain
leverage against the US in a dispute over unfair social security payments by Indian
workers , the labour ministry has moved to make things tougher for expatriates based in
India. The ministry has recommended stringent provisions in the Employees Provident
Fund (EPF) Scheme to make Provident Fund (PF) withdrawals difficult for expats so that
they can withdraw their savings only after they turn 58.

Officials say the amendment, equally applicable to expatriates of all nationalities, could
increase India’s bargaining power with US authorities in pressing for a bilateral
“totalisation agreement” through which mutual pains could be eased — like a double tax
avoidance pacts.

They say India loses close to $1.5 billion (R7,000 crore) in contributions by Indian
workers in US social security schemes that go waste when workers return. Overall,
Indian expats lose around $48 billion (R2,23,700 crore) per year to social schemes of
different countries.

The labour ministry has sought comments from the ministry of law and justice to amend
the EPF Scheme formulated in 1952. “Discussions to sign totalisation agreements with
many countries are on the fast track. Only with US, despite three rounds of talks, things
do not seem to be moving forward,” a senior labour ministry official told HT. He added
that ministry of law and justice was “not averse” to amendments in the EPF Scheme
1952.

Once a totalisation agreement of India with any country is signed, an expatriate in either
country need not contribute to social security schemes of the host country.

If India and the US ink the deal, tens of thousands of Indians working in the US on H1B
or L1 visas need not contribute to the US social security schemes and US expatriates
need not contribute to an Indian provident fund.

American laws require that an employee must have worked for at least 40 consecutive
quarters (10 years) in the US to make use of social security benefits. However, foreigners
working in India can currently withdraw their Provident Fund deposits as soon as they
leave India. It is estimated that around 75,000 US expatriates work in India at any given
time.

US has totalisation agreements with more than 20 countries but is reluctant to sign one
with India on the ground that India does not provide universal social security cover for
all.

India has already inked totalisation agreements with Germany, Belgium, France,
Switzerland, Luxembourg and Netherlands and active negotiations are under way with
nine other nations that include South Korea, Canada and Norway.