Techie fee thorn in US ties
New Delhi, Jan. 23: India and the US have failed to make much progress in the totalisation pact that addresses the the problem of the double payment of social security taxes by Indian software professionals in America, dampening expectations surrounding President Barack Obama’s visit this weekend.
Top officials said discussions on a totalisation pact, which could help Indian software professionals to save an annual outgo of $2 billion, remained in balance and an agreement was unlikely to be signed during Obama’s Republic Day visit to India.
Indian software professionals travelling to the US on short-term contracts have to pay social security contributions, which they can never claim on their return home.
Expatriates have to continuously work in the US for 40 quarters, or 10 years, to claim a refund. However, most techies travel to the US on three-year or five-year visas.
A totalisation agreement is signed between nations to avoid the double taxation of income for social security contributions.
India has such pacts with countries such as Belgium, France, Germany, Switzerland, the Netherlands, Hungary, the Czech Republic, Denmark and Luxembourg.
Nasscom, India’s apex industry association of software companies, has been lobbying for such a pact, nudging successive Indian governments to take up the issue.
Nasscom feels the absence of a totalisation pact and the shortage of short-term visas for software professionals are the biggest hurdles to India-US trade in services.
India exports software and IT services worth about $40 billion to the US, its biggest infotech market.
However, despite several rounds of talks with the US, not much progress has been made. “The latest round, too, has not yielded much benefit,” said officials involved in the talks.
Analysts said a totalisation pact is not a priority to the US – as many as 60,000 Indian techies work in the US and will benefit from such a pact, while the number of Americans working in India are much less.
Moreover, the social security tax levied in the US is compulsory for all workers, but the provident fund scheme in India is not mandatory for someone coming on a short-term contract as a domain expert. Such workers are paid a lumpsum with no provident fund deductions.
US negotiators further feel India’s social security structure is different from their system and, thus, the two cannot be linked to theirs.
The US does not have totalisation pacts with China, the Latin American countries or the Philippines, who contribute a large numbers of workers to the US.
“If Indian pressure works on President Obama and a breakthrough does come about at the highest level, it will be a coup of sorts for India. But as of now it seems we will have to continue negotiating,” officials said.
