Internal Circular issued by Employees Provident Fund Organisation (“EPFO”) for readjustment of excess amount in pension fund in case of Indian outbound employees

Background

In October 2008, the Ministry of Labour and Employment (“MLE”) made fundamental changes in Employees Provident Fund Scheme (“EPFS”) and Employees Pension Schemes (“EPS”).  The ambit of both the schemes was broadened to compulsorily cover International Workers (“IWs”) under the purview of India’s social security regime. As part of the scheme all Indian outbound employees posted to countries with which India has signed a Social Security Agreement (“SSA”) were also treated as IWs. Such IWs in order to avail exemption from contributing to the social security in the host country with which India has entered into an SSA were required to obtain a detachment certificate termed as Certificate of Coverage (“COC”) from the Indian Provident Fund (“PF”) authorities. 

In September, 2010, the MLE issued a notification further amending the EPFS and EPS in relation to the IWs. This notification stipulated that the contribution to pension fund by IWs (including the Indian outbound IWs as specified above) will be made on full salary as against the wage ceiling of INR 6,500 in the case of normal Indian employees.

However, on May 25, 2012, the EPFO issued a circular notifying that a detached Indian employee availing exemption from contributing to a social security scheme of the host country by obtaining a COC from India and responsible for contributing to social security system in India, will not fall under the category of IW.

Recently, the EPFO has issued a Circular[1]  in order to provide greater clarity on excess pension contribution made to the pension fund of the Indian outbound employees, who were previously qualifying as IWs.

Instructions / clarifications provided in the Circular:

(I)         Indian outbound employees with COC do not fall under the purview of IW and contribution in respect of such employees would be governed by normal provisions as applicable to any other Indian employee.  Thus, the pension contribution for such employees should be limited to the wage ceiling of INR 6,500.

(II)      The PF authorities have further clarified that the contribution remitted to the pension fund account in respect of the Indian outbound employees, who have contributed on full salary due to lack of clarity on the matter, needs to be readjusted by limiting the contribution in the pension fund to the wage ceiling of INR 6,500 per month and diverting the excess amount to the provident fund account of the member employee if a request for readjustment of excess amount is made by an employer