“You have to earn 40 credits, which is equivalent to working for 10 years in the US, to get eligible for pension benefits after retirement, otherwise all contributions will be a sunk cost for you,” says chartered accountant Anurag Jain, co-founder and partner at ByTheBook Consulting LLP, a tax consulting firm.
Moreover, you have to stay in the US to keep receiving pension benefits. Vamsidhar Atyam (46) worked in the US for 18 years for different companies before coming back to India in 2017. “My last employer did not advise me on the withdrawal of my social security benefits. My own research suggested that I cannot transfer my funds to an Indian retirement plan because India does not have an equivalent or eligible retirement plan on par with the US’s Social Security System,” he says.
Atyam could have received pension benefits had he stayed in the US. “Generally, we cannot pay retirement, survivors, and disability insurance benefits to non-citizens after their sixth calendar month outside the US. However, you might qualify for an exception, which could allow you to receive benefits without visiting the US. If an exception does not apply, you must be physically and lawfully present in the US for a full calendar month to begin receiving benefits. If you leave the US, we will stop your benefits the month after the sixth calendar month in a row that you are outside the country. You can make visits to the US for specific periods of time, depending on how long you’ve been outside, to continue receiving your benefits,” according to an official website of the Social Security Administration in the US.
The rules are relaxed for countries with which the US has signed social security agreements (SSAs). “The US does not recognise EPF as an equivalent social security scheme because unlike the concept of universal pension in the US, EPF is not universal in India,” he says.
The UK is no different. Contributing to National Insurance, the UK’s government benefit programme, is mandatory. Your contributions will not benefit you if you leave the country before completing 10 years. In case of contributions of more than 10 years, the pension eligibility will depend on a case-to-case basis if you have left the UK. In most cases, it is non-transferable because the UK does not have an SSA with India. The official website suggests writing specific queries to the International Pension Centre.
The scenario changes in the case of Australia, Canada or other countries with which India has signed an SSA. The country has signed SSAs with 21 countries, according to EPFO. SSAs protect employees from dual contributions (in case of split payrolls) and also protect short-term contributions to provide continuity. Take the case of Amit Goyal (39). He worked in the Netherlands for just two years before returning to India. He is still eligible for pension against contributions made in the two years because India has an SSA with the country. He can get it in his Indian bank account when he turns 67, the retirement age in the Netherlands.
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“The exportability of pension benefits in SSAs allows Indians to receive pension from the host country, either in their home country or a third country, without any reduction in such benefits,” says Jain. “On the other hand, EPFO allows employees from SSA countries to withdraw PF contributions when they cease to be an employee of an Indian company. To protect themselves from dual social security contributions, Indian or foreign workers can submit a certificate of coverage (CoC) from the social security authority of their home country to the host country.”
Interestingly, even though India does not have an SSA with Hong Kong, Nayan Goyal (31) could withdraw his pension funds when he left the country to move to India. “I worked in Hong Kong for 2.5 years from June 2019 to December 2021. I could withdraw whatever I had contributed to their mandatory pension fund on the condition that I will not return to Hong Kong either for employment or resettlement as a permanent resident,” he says.
Having a Hong Kong bank account was important. “They credited it to my Hong Kong bank account which I got transferred to my Indian bank account later. I paid tax on the same as per my slab rate in India,” he says.
It is to be noted not all pension schemes make their way into SSAs. “There were two portions of social security in the Netherlands. I can only withdraw one of them,” says Goyal.
Deepashree Shetty, partner, Tax & Regulatory Services, BDO India, suggests checking out the list of social security schemes included in the SSA of a particular country where one is going. “The National Pension System is not part of SSAs from India. Similarly, a few social security schemes could very well be excluded from SSAs of foreign countries,” she says.
The level-playing field
The recent ruling by Karnataka High Court on EPF contribution by foreign nationals should be seen in the context of SSA and non-SSA countries. The court ruled that para 83 of the EPF Scheme, 1952 and Para 43A of EPS, 1995—that was inserted in October 2008—are “discriminatory” and “unconstitutional”. Let’s understand why they did it.
Notably, in case of Indian workers, an EPF contribution of 12% of the basic salary is mandatory if the basic salary is less than ₹15,000 per month. The employer matches the same contribution. If it goes above ₹15,000 per month, we have a choice whether to contribute to EPF or not. This wage ceiling of ₹15,000 per month does not apply to international workers (IWs). Their contribution to EPF is mandatory (except SSA countries) irrespective of the salary they are drawing in India. Moreover, their contributions are fixed at 12% of the entire salary along with the same contribution by the employer, taking it to 24% of the entire salary.
“This discrimination between Indian and international workers defeats the very objective of the EPFO Act, of providing retirement benefits to low-income workers,” says Mayank Mohanka, a chartered accountant. “So, instead of scrapping para 83 of the EPF scheme altogether, a more sustainable legal solution would be to put in place a similar wage ceiling limit for foreign workers.”
However, if the Karnataka HC judgement is upheld, foreign workers from non-SSA countries, including those from the US and UK will not be bound to contribute to EPF while Indians working abroad will continue contributing their hard-earned money to the US or UK social security. Even if foreign workers decide to contribute, they can withdraw it after they leave India. Currently, they can withdraw it only at the age of 58.
The level-playing field between Indians working in an SSA country and those coming from the same SSA country to India will be gone, too. “If IW provisions are deemed unconstitutional, it will hurt the very objective of existing SSAs,” says Jain. “Indians will need to produce CoC to SSA countries to avoid dual social security contributions. However, employees from those countries working in India will be exempted as their monthly salary will be more than ₹15,000 threshold limit, thereby obviating the need to submit CoC.” This could also jeopardise any potential chances of India entering into SSA with other countries, as the 2008 amendment provided the catalyst for the government of other countries to enter into SSA with India.
Shetty of BDO India agrees. “The idea of introducing the definition of International Worker in 2008 was to make social security contributions reciprocal between India and foreign countries because when Indians would go abroad, they would contribute to other social security schemes, but foreign nationals were not mandated to do so. If the Karnataka High Court judgement is upheld, we shall be back to square one,” says Shetty.