Foreign Workers’ Inclusion in PF Ruled ‘Unconstitutional’ by Karnataka HC
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Sulaiman
- . May 7, 2024
- . Update: May 7, 2024 7:58 pm
The Karnataka High Court’s recent ruling has stirred up a debate over the inclusion of foreign workers in the Employees’ Provident Fund (PF) scheme. In a significant decision, the court struck down the provision that mandated foreign employees to contribute to the PF, deeming it “unconstitutional and arbitrary.”
The Ruling and Its Implications
The ruling comes over 15 years after a legislative amendment extended PF and pension coverage to foreign workers. Justice K.S. Hemalekha’s judgment stated that the Employees’ Provident Fund and Miscellaneous Provisions Act of 1952 was primarily designed to secure retirement benefits for employees in lower income brackets. Requiring higher-salaried employees, including foreign workers, to contribute to the PF scheme would be inaccurate, the court noted.
The decision is expected to face opposition from the Employees’ Provident Fund Organisation (EPFO) and will impact numerous expatriates who have either contributed to or are currently enrolled in the social security program.
Petitioners’ Arguments and Grievances
The petitioners, representing various sectors such as education, logistics, real estate, and technology, argued that the EPF provisions conflicted with Article 14 of the Constitution, which guarantees equality before the law.
Their primary grievance stemmed from the fact that foreign workers were covered by the PF scheme regardless of their salary, while domestic workers earning above the prescribed statutory limit of Rs. 15,000 per month were excluded. The petitioners contended that international workers are in India for a finite duration, and mandating them to contribute based on their entire global salary would result in irreparable harm.
Potential Ramifications and Concerns
Kuldip Kumar, a partner at Mainstay Tax Advisors, highlighted the far-reaching implications of the ruling. He raised concerns about whether international workers should stop contributing, and whether those who had previously contributed and left the country could claim refunds before attaining the age of 58.
Furthermore, the ruling raises questions about the income tax paid on such contributions and interest, as well as the tax implications for employer’s contributions exceeding Rs. 7.5 lakh and employee’s own contributions exceeding Rs. 2.5 lakh, along with interest on such excess contributions.
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Addressing Discrimination and Constitutional Principles
The court’s ruling emphasized that requiring an Indian employee working abroad to contribute Rs. 15,000 towards PF while mandating a foreign worker to contribute based on their entire salary is deemed “discriminatory” and contravenes Article 14 of the Constitution, which guarantees equal protection under the law.
The decision has reignited discussions surrounding the principles of equality and non-discrimination, particularly in the context of social security and retirement benefits for workers, both domestic and foreign.
As the debate unfolds, stakeholders, including the government, employers, and workers, will closely examine the implications of this ruling and its potential impact on labor laws, taxation, and the overall treatment of foreign workers in India’s employment landscape.
