• Australia/India Social Security Agreement

The new social security agreement between Australia and India (the Agreement) came into effect on 1 January 2016.

It allows businesses operating in Australia and India to avoid making compulsory contributions to each countries’ respective superannuation and social security systems for temporarily seconded workers.

The agreement will significantly reduce the cost of assigning employees between the two jurisdictions as well as provide an opportunity to recover previously paid Indian Provident Fund contributions.

Background

The principal aim of the Agreement is to prevent a double social security liability for employers. Under the Agreement, employees seconded to India or Australia are able to remain on either their home country social security or superannuation scheme. This is applied for through application for a Certificate of Coverage (the Certificate), which can be submitted through the Indian or Australian tax authorities.

Certificate of coverage

Where the Certificate is held, the employer will be exempt from contributing to the Indian Provident Fund for Australian employees on secondment to India; however, the employer must continue to make contributions to the Australian superannuation fund.

The same will apply for Indian employees sent to Australia; where Indian employers continue to make contributions to their Indian Provident Fund, they will be exempt from contributions under the Australian superannuation scheme.

The Certificate will be valid for up to five years from the assignment date, with potential for extension pending agreement by both contracting states’ tax authorities. Where an employee is already on assignment to the contracting state, the coverage period may be applied from the commencement date of the Agreement (1 January 2016).

Benefits of the Agreement

For Australian employees working in India, the Agreement provides an exemption from social security contributions in India, the potential for early withdrawal of contributions already paid to the Indian Provident Fund upon completion of the assignment and the potential to receive Indian pension benefits.

For Indian employees working in Australia, the Agreement provides an exemption from superannuation contributions in Australia. In addition, employees will continue to be recognised as ‘local employees’ in India for the purposes of eligibility for Indian Social Security benefits.

Pensions

In addition to the benefits to businesses, the Agreement will make retirement easier for residents of both countries. Former Australian residents now living in India will be able to claim the Australian Age Pension without having to return to Australia; likewise, former Indian residents currently living in Australia will now have access to Indian retirement pensions.

Withdrawal of benefits from India

Previously, ‘international workers’ were unable to withdraw their Provident Fund contributions in India. Under the Agreement, Australian residents who do not qualify for an Indian pension under India’s domestic social security legislation can now apply for a refund of their contributions after departing India.

This could enable individuals to recoup payments of Indian Provident Fund Payments previously made and employers’ contributions to employees’ pension scheme.

Applicable law

The agreement covers laws applicable to or affecting the age pension and the superannuation guarantee:

Australia

  • Superannuation Guarantee (Administration) Act 1992
  • Superannuation Guarantee Charge Act 1992, and
  • Superannuation Guarantee (Administration) Regulations 1993

India

  • Old-age and survivors’ pension, and
  • The Permanent Total Disability pension

Actions

Any businesses with employees seconded between Australia and India should:

  • analyse the current assignments between Australia and India to determine whether an application for a Certificate of Coverage to existing assignees can be made
  • review company assignment policies to take into consideration the new agreement for future assignments
  • consider any employment cost savings from the Agreement and reassess potential business plans
  • consider the scope and eligibility to reclaim Indian Provident fund contributions

For more information please contact your usual Grant Thornton advisor, or:

Thomas Isbell
Head of Global Mobility Services
E thomas.isbell@au.gt.com
T +61 2 9286 5689