India-US Totalisation Pact – Need for an early Conclusion

30 Aug 2016

The agenda for the second Indo-US Strategic and Commercial Dialogue, commencing on August 30, 2016 in New Delhi, suggests that though the focus of the discussions will primarily be on geo-political, geo-economic, and geo-strategic issues of mutual interest, India is also likely to strongly urge for an early conclusion of the Totalisation Pact or the Social Security Agreement (SSA) with the US. The SSA will help facilitate mutually beneficial bilateral flows of professionals between two countries. The current subdued global growth outlook (India however at around 7 percent in real terms is continuing to grow strongly) and strong convergence of strategic interests should act as motivating factors to complete the long drawn out negotiations for the SSA.

With regard to social security contributions and benefits, totalisation pact performs a role akin to double-taxation treaties in governing income tax arrangements internationally. The basic philosophy of such agreement is to ensure that cross-border workers do not end up paying social security taxes or contributions in more than one jurisdiction, or alternatively, avoid paying them in any jurisdiction, thereby constraining their retirement security. With populations living longer, cross-border flows increasing, and individuals having to bear greater share of their retirement needs, lack of SSA agreement could be detrimental to deeper bilateral economic engagement.

Most of these agreements are rooted in the principles of efficiency and equity in collection of contributions and disbursement of benefits for workers whose work-life is spent across various social security jurisdictions. Efficiency requires that social security taxes are levied in only one tax jurisdiction, preferably in the one that pays the benefits, thereby also making it internationally portable. This permits organizations employing them to better plan their costs, and facilitates retirement financing.

Mukul G. Asher is a Professorial Fellow, Lee Kuan Yew School of Public Policy, National University of Singapore. This article was first published in MyIndMakers on 30 August 2016.

Mukul Asher

Professorial Fellow