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The Indo-American Chamber of Commerce has urged the Indian government to take steps to sign a social security pact with the US Administration to provide relief to the increasing number of Indians working in the United States of America on short-term visas.
This will eliminate double taxation towards social security in India and the US on professionals working on short-term assignments.
Unofficial sources indicate that contributions of Indian professionals on short-term contracts in US are as high as $1 billion annually. This proposal assumes importance since it comes close on the heels of the recent treaty India signed with Belgium.
"The treaty should envisage avoidance of double taxation of social security, both, in the home and the host countries for professionals working on short-term visa. Once such a treaty is signed the professionals will be required to pay social security taxes only in home country, helping thousands of Indian professionals working in the US on short term assignments," said Deepak Pahwa, president Indo-American Chamber of Commerce..
Significantly, the US has signed such treaties with several other countries known as the 'Totalization Agreement.'
Alternatively, as in the social security pact signed between India and Belgium, Indian professionals working in the US for a specified time making mandatory social security tax payments to the host country should be allowed to export social security benefits, on completion of work contract/ retirement and subsequent relocation to home country, said Pahwa.
The two countries, taking into consideration the average length of the contract, should mutually agree upon the length of the specified time.
Most Indian professionals working in US are on short-term visas, up to a maximum of 5 years, and therefore are not able to meet the stipulation of 10 years set by the US government to derive the benefits of this scheme.
During this time, both the employer and the employee continue to contribute to the Provident Fund and Gratuity requirements in India. "Not only does this lead to double taxation towards social security, but the benefits of the taxation in the US are not made available to most taxpayers," said Pahwa.
Unofficial estimates of this forfeit of resources on account of non-claiming of social security benefits by Indian professionals on short-term visa are estimated to be close to $1 billion annually.
Procedural mismatches have hindered the progress of India's debate with the US Administration on this subject.
Difference in semantics of taxation: In the US, any deduction from the salary of an employee for social security is termed as a tax. But in India, contributions towards Provident Fund, gratuity and other superannuation benefits are not treated as taxes but as mere contributions, though the employees are the ultimate beneficiaries.
Principle of Reciprocity: Currently, there are more Indians working in the US than there are US citizens working in India. But the situation is fast changing. There is an increasing number of foreigners, particularly from the US working in India for short durations.
Their number is bound to go up in the coming years as more and more overseas investors resort to mergers and acquisitions and investment in green-field projects.
In course of time, there will be a semblance of equanimity in the number of Indians working abroad and expatriates working in India, creating an ideal situation for complying with the Principle of Reciprocity.
This would create a situation for both the US and India where revenue earned and foregone are more or less equal.