India US Totalization agreement
Totalization agreements are international social security agreements that eliminate dual social security taxation, both in the home country and the country where an employee works. Once it is signed it would benefit workers of both the countries.
What is a Social Security Agreement (SSA)?
A social security agreement (SSA) refers to an agreement between two countries, which helps their internationally mobile workers in several ways as mentioned below:
- First is the equality of treatment. This means that the persons who ordinarily reside in the territory of one country keep receiving the equal treatment with respect to the social security contributions in the second country.
- Second is the portability of the social security benefits. This generally means that the old age, disability and survivors’ benefits of one contracting state are paid to the nationals of the other contracting state residing in the territory of a third State, under the same conditions as if they were national s of the first contracting state.
- Third is totalization. When employee from one country works in another and ends up paying taxes in both the countries. Totalization helps by eliminating such dual Social Security taxation. It also helps in filling the gaps in benefit of the protection for the workers who divided their career between two countries by totalisation of the period of contribution in the host country for determining the eligibility for benefits.
India–US Bilateral Totalisation Agreement (BTA)
Till now, India had signed totalisation agreements with several countries (presently it is with 14 countries) including many in Europe. But a similar totalisation agreement with the US has come up but with little success. The US has also signed the totalization agreements with 24 countries. India has been trying since 2007 to sign such agreement with US.
Currently, temporary migrant Indian workers in US have to make dual payment of social security contributions by, both at home and in the country where they are deployed. India has around 3 lakh workers in the US, contributing over $2 billion every year towards social security taxes and they do not get any benefits. To avail social security benefits in US one has to stay for over 10 years, but work visas in US are provided for maximum of 6 years. Over the years, nearly $25 billion have been lost by India. A totalisation agreement between the India and US will correct this anomaly and help Indian workers realise the full benefit of their social security contribution. US workers in India also face the same problem but since their numbers are few, US is not pressing the issue.
An Indo-US BTA is relevant because:
- If the BTA becomes a reality then the Indian professionals working in the US will not be required to make social security contribution to the US, provided they are contributing to the provident funds in India.
- Also they can do so by obtaining a certificate of coverage (CoC) and be exempted from social security contribution in the host country. It would act as a certificate of exemption from the social security taxes on the same earnings in the other country.
Issues in signing the BTA agreement
The Social Security Administration (SSA) and the office of the US Trade Representative (USTR) are pointing that there is a statutory obstacle to an agreement. They contend that the US “may only enter into a ‘Totalisation Agreement’ with a foreign country that has a social security system”. According to the US, India’s present social security system does not appear to meet this criterion. Presently Indian social security system is basically a provident fund or mandatory savings plan system, which is available as a lump-sum payment and does not meet the US criteria of periodic benefits. One simple reason why the US is not signing the agreement is they don’t want to lose free money.
India is contending that both countries have signed such pacts with many countries in common and so there is some compatibility in their social security systems. Further, India has also launched the National Pension System, which is on the lines of social security schemes run in many countries. While the US has finally acknowledged these arguments in 2010, the issue is still under negotiations. After a gap of five years, both the countries have started negotiations on the pact this year.
India is also contending that schemes such as Atal Pension Yojana, Rashtriya Swasthya Bima Yojana, Employees Provident Fund Organization and others should be taken into account while determining the size of population covered under social security schemes in India. But the US is saying that all these schemes were optional and not mandatory and it was not mandatory for the US to negotiate on Totalization Pact with a country that has less than half of its population under social security schemes.
Analysis and Conclusion
The negotiations on the totalisation agreement have been linked to discussions on other issues of common interest. New Delhi has fought for three decades about the unfairness of the international nuclear order, which excluded India. Things have changed with the 2005 Indo-US nuclear agreement. The US broke down the nuclear superstructure for India not because it suddenly saw sense in New Delhi’s argument but because it wanted a strategic partner with emerging India. The rise of China was also a huge factor. Presently, the US feels no such compulsion for concluding a totalisation agreement with India.To overcome the obstacles in signing the BTA, India should go for a tighter case complete with legal arguments. The government must also involve stakeholders from Indian industry to devise a strategy. India should also use its leverage in an unrelated area where the US wants Indian cooperation.
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Tags:Economy , Federal Insurance Contributions Act tax , India , Microeconomics , Money , Pension , Portability , Social programs , Social Security , Taxation in the United States , Totalization agreements , United States , Welfare economics