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Indian workers to get exemption from social security payment

SIVASIVA (FCA, Future CA)     11 July 2010

FCA Future CA 
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NEW DELHI: Indian professionals working in the US, Australia, Canada and Japan may soon be exempted from paying social security contribution in those countries if they make such payments in India. 

The benefit will be available under social security pacts that the Government is negotiating with these countries. The agreement will also ensure orderly migration of workforce to and fro and provide for cooperation in areas of labour market expansion. 

Overseas Indian Affairs Minister Vayalar Ravi said his Ministry has already concluded negotiations with Canada for signing a social security agreement and talks are progressing with Japan, Australia and the US for similar pacts. 

"We have already concluded negotiations with Canada while talks are at advanced stage with Japan and Australia. We are also trying to firm up such a pact with the US and the negotiations are progressing," Ravi told PTI in an interview. 

According to estimates, there are nearly four million Indians in the four countries with 70 per cent of them working as professionals in various fields, including IT. 

The move by the ministry came in view of the fact that expatriate workers often do not get any benefit from the social security contribution paid abroad on their return home on completion of term of contract because most countries do not allow transfer of social security benefits. 

As per Indian Government's labour laws, all employees and employers falling under the purview of the Employees Provident Fund Act, 1952 are required to make mandatory contribution towards provident fund. A mandatory contribution fund is known by different names in different countries, such as social security in the US. 

Though professionals posted in foreign countries continue to make such payments in India, they are compelled to pay social security tax in the host countries too leading to double contribution. 

Under the SS pact, workers on short term contracts of up to five to six years will not be required to make any social security contribution in the country of employment provided they continue to make social security payments in the country of their origin. 

Officials said the pacts would also help India Inc to send its employees to these countries for various overseas projects as companies would save on costs also. 

The Overseas Indian Affairs Ministry has already signed social security pacts with a number of countries including the Switzerland, Luxembourg, Netherlands, Belgium and France. 

Ravi said the agreement will also enhance India's bilateral cooperation with these countries.


Tikaram Chaudhary

Tikaram Chaudhary (GM Operations to Actuary & Gratuity Trust Fund Consultant)     05 March 2021

Tikaram Chaudhary
GM Operations to Actuary & Gratuity Trust Fund Consultant 
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The New Provisions for Gratuity Benefits as per Social Security Code 2020 will be effective from 01.04.2021.

Analysis for New Provisions for Gratuity Benefits reveals that there will be an exponential rise in Gratuity Liability of employees due to following 3 Provisions:-

1. Change in Definition of Wages (I.e. Wages to be 50% of CTC)

2. NIL vesting condition for Gratuity for Fixed Term Employees.

3. Vesting Condition to be 3 yrs in case of Special Correspondent of News Agency.

There are 2 Options for Companies for Gratuity :-

1. Accounting Option - It is a compulsory option for Companies as it is enforced by the provisions of Section 129 & 133 of Companies Act 2013. In this option companies make provision of gratuity based on an Actuarial Report duly certified by Actuary for compliance of AS 15 Revised 2005/IndAS 19.

2. Funding Option - It is an Discretionary Option for Indian Companies but it is a preferred option due to Annual Tax benefits available under Section 36 (1) (v) of the Income Tax Act 1961. This benefit is not available in option 1 above. 

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