What The Delhi High Court's Provident Fund Ruling Means For Foreign Staff In Indian Companies

In India, the Employees' Provident Fund Scheme, 1952 ("EPF Scheme"),framed under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 ("EPF Act"), operatesas a compulsory contributory fund for employees in establishments employing 20 or more persons. The EPF Scheme, primarilyapplies to Indian employees with a statutory wage ceiling of INR 15,000 per month for mandatory contributions, exempting higher earners unless they opt in.

Under Section 1(3)(a) of the EPF Act read with Section 2(f), which defines "employee," the legislation does not explicitly distinguish between Indian nationals and foreign nationals.

In the years 2008 and 2010, the Central Government vide notifications added Paragraph 83 into the EPF Schememandatingthat "international workers" (broadly defined as foreign passport holders employed in India, excluding those covered under bilateral social security agreements) employed by establishments to which the EPF Act applies must contribute to the EPF scheme,irrespective of their salary level,from November 1, 2008or their first day of employment.This meansforeign nationals working in India are required tocontribute 12% of their full salary (without any wage ceiling exemption) to the provident fund, with employers matching this contribution.

The effect of the amendmentshas been that the provident fund contributions of international workers are calculated on the entire salary without any wage cap, unlike Indian workers who have a salary ceiling for PF contributions. This often translates into higher contribution costs for employers hiring foreign workers on short-term assignments. Additionally, international workers face restrictions on withdrawal; their accumulated provident fund can usually only be withdrawn upon reaching retirement age of fifty-eight (58), except in cases of permanent disability or specific severe illnesses.The coverage applies regardless of whether part of the salary is paid outside India, ensuring comprehensive provident fund compliance for international employees.

The said amendmentssparked controversy, with employers decrying the "discriminatory" treatment of foreigners compared to Indians, leading to legal challenges before the Courts.

The Delhi High Court, in the recent judgment of 'Spice Jet Limited vs. Union of India and Ors.'¹ and 'LG Electronic India Pvt. Ltd. vs. Union of India and Ors.'² delivered on November 04, 2025 has dismissed two long-pending writ petitions challenging the applicability of special provident fund (PF) provisions to foreign employees under the EPF Act as post-2008 notifications, the EPFO issued compliance notices demanding retrospective PF contributions on full salaries for these workers, without the INR 15,000 cap.

The Court upheld the validity of the Notifications issued by the Employees' Provident Funds Organization ("EPFO") in 2008³ and 2010⁴ whereby the Employees' Provident Fund Scheme, 1952 ("Scheme") under theEPFActwas made applicable to International Workers("IWs").

The Court heldthat all IWs, except those excluded by virtue ofbilateral Social Security Agreements ("SSAs")executed betweenIndia andother countries, are required to contribute to the Scheme on their full monthly payand not on the ceiling limit of INR 15,000as is the case for domestic employees, with the option to withdrawfrom the provident fund ("PF")upon reaching the age of retirement atfifty-eight (58) years or in certain other circumstances as outlined in the Scheme.

Background

Separate petitions were filed by SpiceJet Limited a low-cost airline,and LG Electronic India Pvt. Ltd. a multinational electronics firm, beforethe Delhi High Courtchallenging the demand noticesseeking payment of dues for IWsand a summons under Section 7A of the EPF Act requiring production of records for determiningcontributions.

Contentions

The petitioners raised three primary constitutional objections:

1. Discriminatory Classification:The notifications directing foreign workers must contribute to EPF regardless of salary, while Indian employees earning above INR 15,000 per month are exempt from mandatory coverageis prima facie discriminatory burden on IWsand the Indian employers engaging them.
2. Impractical Withdrawal Rules:The withdrawal rule allowing access only at age 58 is impractical for expatriates who typically serve short-term assignments of 2-5 years in India.
3. Ultra Vires the EPF Act:The notifications exceed delegated authority, as the EPF Act itself does not classify employees by nationality.

The petitioners relied uponthe judgement of'Stone Hill Education Foundation v. Union of India',⁵ passed by Karnataka High Court to further support their reasoning.They also urged forthe demand notice and summoning order issued against them under Section 7A of the Act (relating to determination of dues from the employer) to be quashed.

The Union of India and the EPFO, in response, defended the notifications as a valid exercise of delegated legislative power, asserting that IWs form a distinct and reasonable class based on their employment tenure, international status, and social security arrangements. They argued that the modifications were made to harmonize India's domestic social security framework with its international commitments under SSAs, ensuring reciprocal treatment for Indian employees working abroad. It was further contended that the removal of the wage ceiling and the age-linked withdrawal rule were policy decisions aimed at maintainingthe integrity, uniformity, and financial sustainability of the fund.

Issues

1. Whether the classification between IWsand domestic employees under Paragraph 83 of the Scheme was arbitrary andviolative of Article 14of Constitution of India;and
2. Whether the restriction on withdrawal under Paragraph 69 was unreasonable or disproportionate in view of the shorter employment tenures of IWsin India?

Decision

TheDelhi HighCourt applied the classical two-pronged test: (i) intelligible differentia and (ii) rational nexus to the object sought to be achieved,as laid down in the judgment of Union of India v. N.S. Rathnam & Sons.⁶ The Courtemphasized that mere inequality is insufficient to establish arbitrarinessand thatwhat is to be seen is whethersimilarly situated persons are treated differently without a reasonable basis. Applyingthis reasoning, the Court accepted that IWs form a distinct and discernible classof employees.

On the first limb, the Court found that IWs differ materially from domestic employeesasthey usually serve in India for shorter durations of two (2) to five (5) years, are often covered by reciprocal Social Security Agreements ("SSAs"), and face no comparable long-term economic duress linked to retirement in India. This constitutesan intelligible differentia producing distinct social and economic consequences.

Regardingthe second limb, the Court held that the special provisions in Paragraph 83bear a rational nexus to the Scheme's objecti.e., what is sought to be achieved by mandating an employee to become a member of the Scheme is to providesocial security.

Addressing the precedents relied upon, the Court declined to follow the Karnataka High Court'sruling in Stone Hill Education Foundationobservingthat it overlooked the economic-duress rationale and India's reciprocity obligations. It, however,concurred with the reasoning of the Bombay High Court in Sachin Vijay Desai v. Union of India,⁷ which upheld thedifferentiation.The Bombay High Court held that the purpose and object of making special provisionswith respect to IWs can be attributed to the fact between the two identified categories, the first category of employeesare those domestic workers who have secured employment abroad and aregoverned by the social security program of thatcountry, whereas the second category of employees are those non-Indian passport holders who are working in India, generallyfora shorter term and for a limited duration.It was also held that the formation of two separate classes and the differentialtreatment, factors in considerations like the fact that complex considerations go into forming the Scheme, making various provisions for contribution by employeesand employersand the ability of the funds to give returns on such contributions.

With respect to the challenge to Paragraph 69, the Court held that the restriction permitting withdrawal of accumulated funds only upon retirement at fifty-eight (58) years is neither arbitrary nor unreasonableas the withdrawal regime must be viewed in light of the Scheme's underlying policy of long-term retirement security and the need to align domestic rules with India's international social security commitments.

Accordingly, the High Court upheld the validity of both Paragraph 83 and Paragraph 69 of the Scheme, dismissed the writ petitions, and affirmed that the 2008 and 2010 Notifications were constitutionally valid.The challenge to EPFO's demand notices and summons also failed, as they were based on notificationswhich were constitutionally valid.

Anhad Law's Perspective

The judgment has significant implications for multinational corporationsin India as Indian companies employing foreign nationals now need to ensure compliance with EPF contributions for international employees, even if their salary exceeds INR 15,000 or their tenure in India is short-term (2-5 years).Failure to complymay lead to retrospective demands for dues.Further, companies must contribute 12% of the international worker's total global salary (not just Indian salary), significantly increasing employment costs for expatriate staff.

While the judgment has laidemphasis on India's international commitments underSocial Security Agreements (SSAs), the judgment seems to haveinadequately addressedthe harsh consequences for foreign workers from countries without SSAs with India (like USA, UK) who have no mechanism for early withdrawal.The Court failed toconsider that most foreign assignments are 2-5 years, making a 58-year withdrawal age practically futile.The EPF Act was introduced as social welfare legislation meant to protect industrial workers to enable them to have an assured income after retirementandhigh-earning foreign executives hardly fit this protective paradigm.The Court also did not sufficiently examine whether mandatory contributions on entire global salary are proportionate to the objectivesought.

While the Delhi High Court's ruling aligns with the view of the Bombay High Court, the Karnataka High Court has taken a divergent stancein Stone Hill Education Foundationjudgment. Given these conflicting judgments, the matter is now likely to be settled bythe Supreme Courtof Indiain near future.

Till then, for organizations based out of Delhi, this judgement underscores the need to (i) review payroll and HR practices for IWs; (ii) ensure accurate PF compliance, including clearing any pending contributions or dues identified by the EPFO; and (iii) consider the financial and operational implications of mandatory contributions and withdrawal restrictionsassociated with hiring IWs.

Footnotes

1 W.P.(C) 2941/2012

2 W.P.(C) 6330/2021

3 Notification No. GSR 706(E)

4 Notification No. GSR 148(E)

5 2024 SCC OnLine Kar 49

6 (2015) 10 SCC 681

7 Writ Petition No. 1846 of 2018

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