Monday 5th November 2012

Guide to the Indian provident fund

The Indian Provident Fund Scheme is a contributory Provident Fund (PF), pension and an insurance scheme that is mandatory for the Indian work force. In 2008 the Government of India extended the scheme to all “international workers” and the definition of this is any individual who holds an overseas passport and workers for an establishment in India to which the fund applies. As such, the majority of expatriates who are working in India will be classified as an “international worker” and will be subject to the provisions of the Indian PF.


How much money are expats expected to contribute to the scheme?

Contributions represent a portion of the salary earned and, at present, expats are required to contribute a total of 12 percent of their base salary to this scheme, 8.33 percent of which is allocated to the provident fund and 3.67 percent goes to the pension scheme. A similar amount is also contributed by the employer.


Do I still need to make the contributions if I work in India but am paid outside of India?

Yes. The Provident Fund regulations are valid irrespective of whether the salary is remunerated in India or outside India. In case of a divide payroll, the payment is required to be made on the total salary earned by the employee.


If I also contribute to a social security scheme in my home country, do I still have to pay into the Indian Provident Fund Scheme?

In some cases there may be social security agreements in place between India and other countries. If the expatriate is from a country with whom the Indian government have agreed exemptions then the payments may not be mandatory. However, if no agreement is in place, the expat will be required to make payments to both countries.

There are currently mutual Social Security Agreements in place with Germany, Belgium, France, Switzerland, The Netherlands, Luxembourg, Hungary, Denmark, Czech Republic, South Korea, Norway and Finland.


When can I withdraw my money from the scheme?

Expatriates are entitled to withdraw the balance of the provident fund when they retire or reach the attainment age of 58 years old.


What happens if I leave India, will I be permitted to withdraw the funds?

No. The money will need to remain in India until you reach the age of 58, regardless of how long you actually worked in India.


What are the penalties for non-compliance?

Damages will be payable, ranging from 5 – 25 percent of arrears per annum.

Making a false statement or misrepresentation to avoid any payment towards the provident fund, pension fund or deposit linked insurance fund can result in imprisonment.


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Are you considering moving to India? Check out our comprehensive expat guide to living in India. It contains everything you need to know.

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