This GMS Flash Alert reports on the issuance by India’s Employees’ Provident Fund Organisation (EPFO) of a circular in January 2016 that is aimed at securing proper compliance by employers and employees in respect of employees on overseas assignments.
India’s Employees’ Provident Fund Organisation (EPFO) issued a circular1 in January 2016 aimed at securing proper compliance by employers and employees in respect of employees on overseas assignments. In the circular, the Provident Fund (PF) department stated that since the different regional PF offices were adopting different practices with regard to compliance for Indian employees going to work in foreign countries, there was a need to lay down consolidated guidelines for proper compliance.
The consolidated guidelines should make it simpler for Indian outbound assignees and their India-based employers to understand the rules and requirements and help foster proper compliance.
This will reduce time and effort and help to avoid costly fines and penalties tied to improper compliance.This circular is expected to reduce overseas assignment costs and should also help employers facing litigation from the PF authorities with respect to overseas assignments.yees on overseas assignments.
India has signed several Social Security Agreements (SSAs) with other countries with a view to obtaining an exemption in respect of social security contributions in the host countries for outbound employees, provided that they contribute to social security in India. To obtain this exemption, an outbound employee must have a Certificate of Coverage (CoC) from the designated social security authority, the EPFO, which serves as proof of social security contributions in India.
This is an important circular which may have significant implications for companies with sizable outbound employee populations (such as software firms, Business process outsourcing (BPO), Knowledge process outsourcing (KPO), and other Information Technology/Information Technology Enabled Service (ITES) companies, etc.).
The clarification provided by the PF authorities, that PF liability will not arise in the case of overseas assignments where the salary is neither paid nor payable by the Indian employer, should be a welcome development for Indian industry. In particular, the issuance of this circular offers the potential to:
Employers that have obtained CoCs in the past should review their situations under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), to check whether they are effectively meeting their obligations in light of the clarifications stated in the circular. The circular should also be borne in mind by employers when planning for future overseas assignments.
Employers complying under the EPF Act on a notional salary or shadow payroll, may need to revisit their policies from the PF, tax, and other regulatory perspectives.
1 For the EPFO’s consolidated guidelines (PDF 320 KB), click.
For additional information or assistance, please contact your local GMS or People Services professional or Parizad Sirwalla (tel. +91 (22) 3090 2010 or firstname.lastname@example.org), partner with the KPMG International member firm in India.
© 2018 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.