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Below the Tax Expert`s Comment on High Court ruling on Provident Fund for foreign nationals by Preeti Sharma, Partner, Tax and Regulatory Services, BDO India

“A recent High Court ruling says that the provision of Provident Fund Law applicable to foreign nationals is discriminatory and is in violation of Article 14 (Right to Equality) of the Constitution of India.

The Provident Fund law provides a wage ceiling of INR 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 contribution on their full “PF wages” received in India as well as in home country for working in India. Over and above, the foreign nationals from non – SSA countries are not allowed to withdrawal the balance in PF account until they reach the age of retirement i.e. 58 years.

The ruling is likely to be challenged by the Government and Employee Provident Fund Organisation and may receive finality in the Supreme Court. In the meantime, the employers are required to take position on ongoing compliances for foreign nationals. Further, the retrospective impact of the ruling on PF contribution and taxes is worth evaluating. This ruling will have a far-reaching impact on all ongoing litigation matters on contribution and damages imposed for international workers.”

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