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US eases view on social cover dues

Sidhartha in New Delhi | November 12, 2003 09:42 IST

The proposed pension scheme for the unorganised sector and government employees could help India unlock over $500 million, which the Indian expatriates have to compulsorily contribute in the US towards social security.

Officials said that the US had given an indication that it would recognise the social security system India was putting in place for its employees under the pension scheme.

They said in their discussions with US administration officials, the latter had softened their stand on signing a totalisation agreement with India.

This means that under the provisions of the India-America Tax Avoidance Convention, Indian companies will now have the option of not paying for their employees' social security cover in the US.

In the absence of a totalisation agreement, the Indian infotech sector had to undertake an additional burden estimated at over $500 million annually.

The US authorities sought the details of the pension system before taking a final decision, officials added.

Under the US laws, expatriates have to contribute 15 per cent of their salary towards social security but can become eligible for benefits only after 10 years of stay.

Most Indian professionals stay for a maximum of six years and, therefore, do not get any social security benefits.

So far, the US was not in favour of having a totalisation agreement with India under the plea that Indians did not have any social security network to warrant refund.

Commerce and Industry Minister Arun Jaitley, during his visit to the US in June,  had taken up the matter with the US authorities.

He had argued that India had its own social security system like free medical treatment in  government  hospitals, provident fund schemes and retirement benefits but the proposal had not found favour.

If the US administration agrees to the proposal, a totalisation agreement between the two countries would be incorporated in the India-America Tax Avoidance Convention.

India has been pushing for such a deal in the wake of a large number of software professionals going to the US in the recent past.

"With a more liberalised framework for movement of professionals in place under General Agreement on Trading Services (under negotiation), the annual loss could be much larger," said an official.

The Kelkar task force had estimated that the annual loss to the country in the absence of the totalisation agreement was up to Rs 2,400 crore (Rs 24 billion) and was increasing rapidly.

While employees of the Indian infotech companies are covered by Employee Provident Fund, besides an optional mediclaim policy, these do not provide a comprehensive cover unlike the social security net, which also takes care of the needs of the labour when out of job.

The Japanese and USA social security covers all eventualities and do not discriminate between those who pay income tax and those who do not.


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