Belgian offsites set to be hassle-free, but not totally

Employees of Infosys, Wipro and a host of IT and pharma companies that have a base in Belgium will no longer need to contribute to the social securityscheme there as India implements its first totalisation agreement.

However, Indian tax laws, which have not been aligned with the provisions of the totalisation agreement, threaten to take the sheen off the benefits offered by the treaty signed between two countries to prevent double expenditure on social security.

Currently, when an Indian company sends an employee on an assignment for 2-3 years, he and his employer have to contribute to the social security system prevalent in that country as also to provident fund back home. While this puts an additional burden on an employer, it does not benefit the employee in any way as in most countries, the minimum duration for deriving any benefit is 10 years.

According to estimates, Indian IT professionals in the US contribute close to $1 billion every year. Social security in India is covered by the provident fund scheme, under which an employee contributes 12% of his basic salary plus dearness allowance and his employer makes a matching contribution.

But it is not recognised as a social security by other countries in the absence of such an agreement. But now, this hardships will be mitigated in the case of Belgium as the India-Belgium totalisation agreement comes into effect from September 1.

But with the government yet to align the country’s tax laws with the provisions in the totalisation agreement, the treaty may mitigate only part of the hardship. For example, for an Indian national posted in Belgium to get coverage, his Indian employer needs to continue the contribution to his provident fund.

But, to be able to do that, it would be necessary for him to continue paying his base salary in India which would be subject to tax here even if such salary is not related to employment exercised in India.

“Unless our domestic tax laws get similarly aligned, what is saved on account of Belgian social security may get paid out in the form of Indian taxes,” Amitabh Singh, partner Ernst & Young said.