India-UK FTA brings cheer to IT sector, Nasscom welcomes removal of double social security contribution

The services sector, especially IT/ITeS and financial services, is expected to be a major benefactor of India’s newly signed Free Trade Agreement (FTA) with the UK. While the fine print of the deal is being awaited, a release by the Ministry of Commerce & Industry stated that India has secured significant commitments on digitally delivered services for Indian service suppliers, especially in professional services, computer-related services, and telecommunication services.

“The exemption for Indian workers who are temporarily in the UK and their employers from paying social security contributions in the UK for a period of three years under the Double Contribution Convention will lead to significant financial gains for the Indian service providers and enhance their competitiveness in the UK market that would create new job opportunities as well as benefit large number of Indians working in the UK," the statement said.

Earlier, if an individual was deployed in the UK, even for a short term, companies had to contribute towards social security there, despite the mandatory 12% payment towards provident fund in India. The double social security contribution was, for long, a critical bottleneck for the IT companies.

However, the FTA has introduced terms to prevent the double contribution to social security funds by Indian professionals working for limited period in Britain.

By eliminating the double contribution burden and the three-year exemption under the convention, the agreement directly addresses this long-standing challenge. Welcoming the development, Nasscom, the tech industry apex body, expects this exemption to not only result in enhanced access of skilled Indian talent in the UK and help the economy there but also bring in opportunities to collaborate in emerging areas such as artificial intelligence, cybersecurity, and digital transformation, thus opening doors for startups and innovators.

Nasscom chairperson and SAP Labs India MD Sindhu Gangadharan said that the FTA will lead to acceleration in innovation and deepening technology collaboration between the two nations.

“For India’s IT and services sector, especially our vibrant ecosystem of startups and SMEs, this agreement signals immense opportunity and access to new markets. Beyond economics, it reflects a shared vision: of a digitally empowered future and a stronger, knowledge-driven partnership rooted in trust, talent, and technology,” Gangadharan said. 

Until now, even though Indian companies paid the social security payments for its employees, it was a tedious process with elongated timelines for such individuals to reap the benefits or to get back the amount, Pallavi Bakhru, Partner and UK corridor leader, Grant Thornton Bharat, pointed out.

While it was not only a deterrent, but the rules also added to the cost of talent and compliance, and having a multiplier effect on cost of doing business. Under the new deal, “so long as you give our letter of coverage saying you're paying your contributions in your home country, you don't need to contribute to the social security contributions within the UK”, she said.

Tech Mahindra, which has a significant footprint in Europe especially in the communication and auto sectors, had signalled in its recent earnings call that the FTA is a significant move that would enhance economic collaboration between the two countries. "The Double Contribution Convention will have substantial implications for companies operating within the U.K. In the short term, this could reduce operational costs and allow for greater flexibility in talent deployment," Atul Soneja, chief operating officer, Tech Mahindra had told Fortune India. For the long term, he added, that the ease on contributions would also motivate Indian IT firms to increase their workforce in the UK.

Ashutosh Sharma, VP & research director, Forrester said the changes are a big positive when it comes to deploying talent in the short term. “As the two countries work together more closely, if there's closer collaboration between the supply chains that exist between India and the UK, then it'll obviously create more opportunities for service providers to work together as well,” he said.