
Can a US Company Employ and Pay Someone in Another Country?
The growth of remote work has opened up a global talent pool to US employers, but hiring abroad is not as simple as with a US-based employee. US companies recruiting
Read MoreRetirement funds are one way for employees to save for the future, and each country has a novel approach to how these funds are used. When you are hiring abroad, you will need to be familiar with each country’s fund requirements, contribution limits and tax effects. India has multiple retirement programs, and this guide will outline the Public Provident Fund.
The PPF is an optional investment tool for any resident earning income in India. It is available in addition to the Employee’s Provident Fund which is a mandatory government-backed retirement fund. The PPF is still managed by the central government, and it does allow employees to add to their retirement fund with excess earnings.
The employer is not required to contribute to the PFF but may need to account for them as tax exempt. The employee sets up the PPF directly with a bank or post office.
Subscribe to get more insights like this.The interest rate is set and paid by the government each quarter, and for the fourth quarter of 2021 the rate is fixed at 7.1%.
The minimum annual contribution is INR 500, and the maximum is RS 1.5 lakh (150,000). There is a lock in period of 15 years, which means the fund can only be accessed when it has reached maturity.
The PPF contributions are exempt from personal income tax. Earned interest is also exempt from tax, and there is no tax on principal on maturity, so withdrawals are tax free.
Context: A client reached out to us asking whether the Tax Deduction at Source (TDS) is reduced when an employee invests in the PPF.
Solution: We informed the client that investments in PPF are considered a tax savings investment and therefore reduces income and TDS. Employees should provide documentation of their PPF contributions to their employer, as those are made directly outside of payroll.
If you are new to hiring in India, you may have other questions such as:
Can PPF funds be accessed in case of a medical or health emergency?
Do employees have to report contributions to their employer each month, or at the end of the tax year?
Is the PPF only for employees, or can any resident set one up?
These types of issues are typical for our clients, who rely on our guidance to remain compliant and ensure their employees can participate in all retirement programs. We make international employment simple.
The information in this article is subject to changes in local legislation.
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