EPFO To Seek Stay On Karnataka High Court Verdict On Foreign Workers Inclusion
The judgment was delivered by a single-bench judge and will now likely move to the division bench.
The Employees' Provident Fund Organisation is likely to seek a stay on the recent Karnataka High Court verdict, which found certain provisions of the Provident Fund Law, pertaining to foreign nationals, to be discriminatory.
The EFPO will seek a stay on the Karnataka High court verdict and will be filing an appeal, according to a person with knowledge of the matter, who spoke with NDTV Profit on the condition of anonymity.
The judgment was delivered by a single-bench judge by Justice KS Hemalekha and will now likely move to the division bench.
The grounds for appeal, according to the person quoted above, is that the provisions contested is within the ambit of the principle of reciprocity, whereby individuals of two nations will be accorded similar treatment on the foreign soil of the two countries involved.
An initial estimate indicates that over 1 lakh foreign nationals are currently working in India, from both SSA and non-SSA countries. SSA refers to Social Security Agreement, and India has an operating SSA with 21 countries, notably excluding the United States and the United Kingdom.
Grounds For Protracted Legal Debate
With countries that have bilaterally signed the SSA, a foreign national can obtain a Certificate of Coverage (CoC) which would indicate their social security arrangement in their home country, exempting them from participating in the social security schemes of the host country.
While the matter is now expected to progress to a larger judicial stage, it brings up two questions — one on the equality of treatment between a domestic citizen and foreign naional at the same place of work and the number of countries willing to enter agreements that would mutually recognise each other's social welfare programmes.
Speaking on the grounds for debate, Preeti Sharma, Partner, Tax and Regulatory Services, BDO India noted that the legislative power allows the Government of India to crave out differential provisions for certain categories of individuals in Employees’ Provident Fund Scheme.
This makes the case that certain kinds of jobs can be treated differently. It is evidenced by the amendment made to the EPF Act in para 80 and 81 for journalists and cine workers where their enrolment and contribution is different under special provisions.
The larger question on equality of treament raises the concern whether domestic citizens and foreign nationals working in the same establishment must be treated equally weighed heavily on the recently delivered verdict.
However, it make also open the door for a larger debate on the treatment of Indias abroad.
"The usage of the principle of reciprocity is also to establish equality of rights for Indian citizens abroad, in countries like the United States where the contribution to social security is blocked when they go for a limited duration assignment," she noted.
Commenting on the tax impact on the domestic front, Kuldip Kumar, Partner at Mainstay Tax Advisory notes that several employers bear the cost of employee’s share of contribution to provident fund as well which is considered as a taxable perquisite in the hands of expats
Expats coming to work in India for a duration of 3-5 years, often do not leave the social security benefit of the home country, hoping to return after retirement.
"For the past few years even employer's contribution to the PF in excess of Rs 7,50,000 and interest thereon has also been subjected to tax. This tax liability becomes significantly higher due to tax grossing up impact where such tax cost is borne by the employer. Corporate also gets the deduction for the same as expenditure against their income," Kumar explained.
One of the ramifications of this verdict raises questions on what would happen to those who have already contributed to EPF and left the country?Can they claim refunds ? Can tax authorities question on the corporate tax deduction for such contributions?Kuldip Kumar, Partner at Mainstay Tax Advisory
Kumar is alluding to section 17(2) of Income-tax Act where a there is a cap on a maximum limit of Rs 7,50,000 on employer contribution to PF, NPS and superannuation. Any contribution by the employer over and above the limit of such excess amount will be considered as prequisite and subject to tax.
The verdict also opens up questions on the status of foreign individuals who have already contributed to the EPF and left the country, ensuing a longer judical battle over the subject.
