SOCIAL SECURITY AGREEMENTS

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SOCIAL SECURITY AGREEMENTS

INTRODUCTION
• Due to factors like increasing globalization, rapid growth in the developing economies, emerging opportunities in the global economy, large pool of young and technically qualified persons in certain countries and an ageing population in the western world, migration of professionals across nations is bound to become a major socio-economic phenomenon in the foreseeable future.
• This migration is likely to be of short to medium term duration with migrants returning to their home country after completing the employment period.
• India is a major source of migrant professionals due to its vast reservoir of technically qualified manpower in sectors like Information Technology, Engineering, Health, Finance and Management.
• India is likely to emerge as a major destination for knowledge workers from all over the world in the medium to long term on account of our rapid economic growth.

SOCIAL SECURITY SYSTEM ABROAD
• Most of the developed countries have an umbrella social security system mandated by law.
• It is funded through mandatory contribution from all working people and their employers (in a prescribed ratio) in order to provide multiple benefits like old age pension, disability insurance, health insurance and unemployment insurance.
• The contribution is in the form of a fixed percentage of income subject to a maximum lump-sum limit.
• There are legislative restrictions on export of social security benefits on relocation of the beneficiary to another country.
• There are minimum contribution periods stipulated by law. No benefit accrues if the contribution is made for a lesser period. The entire contribution is lost in such cases.

PROBLEMS FACED BY INDIAN WORKERS
• Indian workers posted abroad (detached workers) by their Indian employers are subjected to double contribution. They have to continue to make social security contribution in India as per Indian law and yet are compelled to pay contribution under the host countries legislation too.
• In case of relocation to India, the workers do not get any benefit from the social security contribution made abroad, because the host country legislation would not allow export of social security benefit.
• Due to the minimum contribution period criteria, a worker staying abroad for a lesser period loses all the contribution.
• Another disadvantage is that due to the high rate of social security tax, the Indian companies become less competitive while bidding for projects in these countries.

NEED FOR BILATERAL AGREEMENT
Bilateral social security agreements can protect the interests of Indian professionals by providing following benefits:
• Exemption from social security contribution for the posted (detached) workers (provided the worker is covered under the Indian social security system and continues to pay his contribution to the Indian system during the period of contract)
• Exportability of benefits in case of relocation to India or any other country after having made social security contribution
• Totalization of the periods of contribution pertaining to both countries for the purpose of assessing eligibility for benefit/pension under the legislation of each country
• Such agreements also make Indian companies more competitive since exemption from social security contribution in respect of their employees substantially reduces costs.

SSA Benefit
SSAs protect the interests of Indian professionals by providing following benefits:
• Exemption from social security contribution for the posted (detached) workers (provided the worker is covered under the Indian social security system and continues to pay his contribution to the Indian system during the period of contract)
• Exportability of benefits in case of relocation to India or any other country after having made social security contribution
• Totalisation of the periods of contribution pertaining to both countries for the purpose of assessing eligibility for benefit/pension under the legislation of each country

The SSAs also make Indian companies more competitive since exemption from social security contribution in respect of their employees substantially reduces costs.

SOCIAL SECURITY AGREEMENTS WITH OTHER COUNTRIES
Countries with which India has already signed Social Security Agreements and where such Agreements have came into force are:
1) Belgium
2) France
3) Germany (social insurance for posted workers)
4) Switzerland
5) Luxembourg
6) Denmark
7) South Korea
8) Netherlands

Countries with which India has already signedSocial Security Agreements but the Agreements have not come into force because finalization of forms is under way:
1) Hungary
2) Czech Republic
3) Norway
4) Germany
5) Finland

Negotiations on Social Security Agreement with the following countries have been concluded:
1) Portugal
2) Canada
3) Austria
4) Sweden
5) Japan

Negotiations on Social Security Agreement with the following countries are in progress:
1) Australia
2) USA

Countries with which Social Security Agreements are proposed to be explored/initiated:

July 2012