India urges us to ink pending social security agreement3 min read . Updated: 26 Feb 2020, 08:15 AM IST
- New Delhi, Washington to discuss the totalization pact that will avoid double taxation of workers in both nations
- Despite years of negotiations, the US has not signed the totalization agreement, also known as social security agreement
India on Tuesday asked the US to consider signing a totalization agreement to avoid double deductions from the income of employees working in each other’s countries, and allowing short-tenure Indian workers in the US to get back billions of dollars in social security deposits there.
Prime Minister Narendra Modi spoke about the need for the totalization agreement, while foreign secretary Harsh Vardhan Shringla said both issues related to the H-1B visa, which has a direct bearing on the information technology (IT) sector, and totalization agreements were raised with the US authorities.
Despite years of negotiations, the US has not signed the totalization agreement, also known as social security agreement (SSA), with India for protecting the rights of IT and other service sector employees who divide their professional career between India and the US.
“I have told (US) President (Donald) Trump that the contribution of our professionals, in terms of social security, should be discussed further within the framework of a totalization agreement. This will be of mutual interest to both of us," Narendra Modi told reporters in New Delhi with Trump.
“The issue of totalization also came up. There was a sense that Indian professionals who spend fewer than eight years and contribute to social security...really need to get that money back," Shringla said on Tuesday.
Indian industry in the US pays approximately $1 billion towards social security, which is only redeemable after 10 years. As the typical term of a temporary high skill visa holder is three to six years, most workers are unable to derive any benefits, the Confederation of Indian Industry (CII) and the United States India Business Council (USIBC) said in a fresh report on Tuesday.
SSAs are akin to double taxation avoidance treaties, whereby workers of signing states are not required to be covered under social security laws of the host state, if they are making contributions in their country of origin, explained Richa Mohanty Rao, partner at law firm Cyril Amarchand Mangaldas. Therefore, this leads to a more equitable treatment of workers and employers on a reciprocal basis, she added.
“SSAs broadly provide three benefits, including avoiding making of double social security contributions by the workers, easy remittance of benefits, and aggregating the contribution periods in two countries to prevent loss of benefits," Rao said.
“In the absence of an SSA with the US, Indian employees face a rough time as billions of dollars of their income are stuck there. In contrast, US employees do not suffer in India as the mandatory social security coverage threshhold in India is too low for an American employee," said Shankar Agarwal, a former Union labour secretary.
As on date, India has SSAs with at least 18 countries and the US has an agreement with more than 24 nations.
“The US view is that because of the incompatibility of the two social security systems, the totalization agreement may not be plausible in the current context," the CII-USIBC joint report said, advocating a study to analyse the feasibility and prospects of an agreement.
On H-1B visas, Shringla said Indian authorities, during the dialogue with their US counterparts on Tuesday, raised the issue and pointed out that Indian professionals contribute significantly to the high tech sector in the US.
There have been noises from Washington D.C. that it plans to curb the distribution of H-1B visas to Indians, which will potentially impact the Indian IT industry and their employees. India takes around 70% of the 85,000 H-1B visas applied annually.
During his US visit in December, external affairs minister S. Jaishankar said: “In some of the meetings, I sort of underlined our interest in ensuring that the flow of talent from India to the US should not be obstructed and no unreasonable legislative provisions should constrain that."