What all changes after
Karnataka HC ruling in EPF case
The
Karnataka High Court has struck down a 15 years old amendment to law which
allowed incorporation of foreign workers in the employees' provident fund
(EPF).
While
calling it unconstitutional and arbitrary , the court struck down the special
provisions for international workers' under Para 83 of the Employees'
Provident Funds Scheme, 1952 (Provident Fund Scheme) and Para 43A of the
Employees' Pension Scheme, 1995 (Pension Scheme).
The
court found that the provisions that allowed international workers to
contribute to the funds were discriminatory and violated Article 14 of the
Indian Constitution, which guarantees equality before the law.
Justice
KS Hemalekha said that while the Employees Provident Funds and Miscellaneous
Provisions Act (EPF & MP Act) empowers the Central government to modify the
schemes, the power has to be exercised only to meet the objectives of the
enactment.
The
EPF & MP Act was enacted with a view to see that those in lower salary
brackets get retirement benefits and by no stretch of imagination, could it be
said that the employees who draw lakhs of rupees per month should be given the
benefit under the enactment, the judge said while referring to the foreign
workers.
International
workers are typically obligated to contribute to the provident fund based on
their entire salaries unless they possess a certificate of coverage from their
home country, provided there is a social security agreement between that
country and India.
Preeti
Sharma, partner, Tax and Regulatory Services, BDO India said, The Provident
Fund law provides a wage ceiling of Rs 15,000 to make mandatory contributions
to PF for Indian nationals. Any contribution over and above this wage ceiling
is optional. However, this ceiling is not applicable to foreign nationals
working in India who are ineligible to receive benefits under a social security
agreement (SSA) signed between India and their home country. Such foreign
nationals are required to make PF contributions on their full PF wages
received in India as well as in their home country for working in India. Over
and above, the foreign nationals from non-SSA countries are not allowed to
withdraw the balance in a PF account until they reach the age of retirement
i.e. 58 years.
Background
The
Employees' Provident Funds and Miscellaneous Provisions Act of 1952 was enacted
to ensure that employees in lower salary brackets receive retirement benefits.
The act established the Employees' Provident Fund Scheme (EPF Scheme) and the
Employees' Pension Scheme (EP Scheme) to provide a safety net for workers.
Later,
the government expanded these schemes to include international workers, who
were required to contribute a portion of their salaries to the funds. The
provisions were introduced by the central government vide notification dated 1
October 2008 requiring international workers to contribute to the Provident
Fund.
Twenty
Three petitions were filed in court. And the petitioners argued that the
provisions were discriminatory and violated Article 14 of the Indian
Constitution. They raised concerns that international workers are included in
the Provident Fund Scheme regardless of their salary, unlike domestic workers
who are excluded if their monthly pay exceeds RS 15,000. Additionally, the
petitioners highlighted that international workers work in India temporarily,
and mandating contributions based on their entire global salary would cause
irreparable injury.
The
HC has observed that non-citizen employees working in India and employees who
are citizens of India are two different classes, but when working in India,
they are equals. Yet, they are treated differently, and hence, this violates
Article 14 of the Constitution of India (right to equality).
The
court had clubbed all the petitions.
Talking
to Business Standard, Nehal Jain, Associate, SKV Law Offices discussed the
impact of judgement on foreign workers
Foreign
workers in Karnataka may no longer be obligated to contribute to the Provident
Fund scheme, which would result in immediate financial relief for them. This
change could affect their retirement savings and social security benefits, as
they may now have to explore alternative avenues for long-term financial
security. Further, foreign workers may also experience changes in their
employment contracts and compensation packages, depending on how employers
adapt to the ruling, Jain said.
The
EPFO is actively' evaluating its options following the court judgement
The
social security organisation said in a statement on Tuesday, The EPFO
acknowledges the recent judgement issued by the esteemed High Court of
Karnataka. The EPFO is actively evaluating the course of action in response to
this judgment.
Abe
Abraham, Partner at Cyril Amarchand Mangaldas, said The expectation is that
this order will be challenged as the implication of this order is far reaching.
Since the court has held it to be unconstitutional, the effect is that these
provisions would be ineffective from its inception. Consequently, expatriate
employees would have had to be treated at par with Indian employees and ought
not to have been made members of the provident fund mechanism if their salary
was higher than the prescribed limits. The ramification of this order on
contributions already made on their behalf would have to be assessed. This
order will also have an impact on any ongoing proceedings initiated against
employers for violating these provisions that now have been held to be
unconstitutional.
www.business-standard.com
dt. 09.05.2024