Inclusion of foreign workers in PF unconstitutional: High Court

New Delhi: Fifteen years after the law was amended to include international workers within the ambit of employees' provident fund and pension scheme, the Karnataka HC has struck down the provisions as "unconstitutional and arbitrary".

The move, which is likely to be challenged by govt and the Employees Provident Fund Organisation (EPFO), will impact thousands of expatriates who have contributed to the social security scheme or are currently part of it.

The petitioners, which included those from sectors such as education, logistics, real estate and technology, argued that the provisions are hit by Article 14 of the Constitution dealing with equality before law.

"Their grievance was that international workers are covered under the PF scheme irrespective of salary drawn whereas domestic workers who draw monthly pay exceeding the prescribed statutory ceiling (i.e. Rs 15,000 per month) are outside the purview... The petitioners further argued that international workers work in India only for a limited period and requiring them to pay contributions on their entire global salary would cause irreparable injury," EY said in a note. The order throws several challenges for expat workers and govt.

"This ruling has much larger ramifications as the same is on the provisions introduced 16 years back. To name a few, should international workers stop contributing or those who contributed earlier and left the country can claim refunds even before attaining age of 58? Then, what will happen to income tax paid on such contributions and interest as for the past few years employer's contribution to the PF in excess of Rs 7.5 lakh and employee's own contribution to PF exceeding Rs 2.5 lakh and interest thereon on such excess contributions have been subjected to tax," said Kuldip Kumar, partner at Mainstay Tax Advisors.

In an April 25 order, Justice K S Hemalekha ruled that Employees' PF and Miscellaneous Provisions Act, 1952 was enacted to ensure that employees with lower salary brackets get retirement benefits and "by no stretch of imagination, could it be said that employees" drawing a higher salary should be given benefit under the law. It said that para 83 of EPF (dealing with international workers) "is in the nature of subordinate legislation" and cannot extend beyond the scope of the law.

The judgment said an Indian employee working overseas continues to contribute Rs 15,000 towards PF, while a foreign worker is made to make a contribution on the entire salary is "discriminatory" and violative of Article 14.

The HC dismissed as "unsustainable" the Centre's pitch on making the contribution mandatory as a measure of reciprocity to honour social security agreements. As a result of the agreements, employees from foreign countries are either exempted from being members or are allowed to withdraw the corpus when the leave India, instead of waiting till they turn 58 years.