India

India is situated at the heart of sub continental Asia, with the Indian Ocean to the south, the Arabian Sea to the west, and the Bay of Bengal to the east.

Its northern land border is shared with Pakistan, China, Nepal, Bhutan, Myanmar, and Bangladesh and, as home to over 1.2 billion people, it is the second most populous country on Earth.

While traditional industries like textiles and agriculture remain important to the economy, modern India has been characterised by rapid industrialisation, urbanisation and technological progress.

India comprises a wide variety of environments, from the snow-capped peaks of the Himalayas, to tropical coastal regions and arid central deserts.

Warm, wet summer monsoon seasons contrast with periods of dry, sweltering heat, and the country has become extremely popular with tourists from all over the world.

General Information

• General Population: 1.417 billion (World Bank, 2022)
• Capital: Delhi
• Language: Hindi, English
• Monetary Unit: Rupee
• Main Exports: Software, Petrochemicals, Pharmaceuticals, Precious Stones, Textiles, Machinery, Iron Ore, Chemicals, Automobiles
• Internet Domain: .In
• International Dialling Code: +91

How Do I Say in Hindi?

• Hello: Namaste
• Good Morning: Suprabhat
• Good Evening: Sama Acchā
• Do You Speak English?: Kya Āpa Aṅgrēzī Bōlatē Hain
• Goodbye: Namaste
• Thank You: Dhan’yavāda
• See You Later: Phir Melange

India is the seventh-largest country in the world and, with a population of over 1.2 billion, is also one of its most populous.

Located at the heart of Asia, India has been an important international trade hub for centuries but following rapid industrialisation and free market reforms in the early 1990s it also became one of the world’s fastest growing economies. 

While India’s economy is built on the historically important agriculture and textile industries, the 21st century emergent industries such as pharmaceutical production, petroleum, biotechnology, and software have become significant contributors. 

With an estimated GDP of $12.63 trillion and annual growth of around 4.2%, India’s development trend is ongoing, with some observers suggesting it may continue into the 2050s.

India plays a significant role on the international economic landscape, and is one of the world’s top exporting countries, trading with partners in Asia, Africa, Europe, and North America. India is a member of the UN, the WTO and the Commonwealth of Nations, and in 2019 it was ranked 63 on the World Bank’s Ease of Doing Business Survey.

The Indian economy is the tenth largest in the world in terms of purchasing power. As predicted by Goldman Sachs, by 2035 India is expected to be the third largest economy in the world - just behind the US and China. Foreign direct investment plays a huge part in the Indian economy’s success and the government is taking steps to increase its role: in 2014, the limit for FDI in the insurance sector was raised to 49% (from 26%), and by 2015, India was the number one FDI-investment location in the world. FDI in India flows into a spectrum of industries, including infrastructure and services, automotive, pharmaceuticals, textiles and airlines.

Employee payments can be made from out with India, however it is mandatory to make payments to authorities/government departments from an in-country bank account. In some states, Professional Tax and Labour and Welfare Fund payments may need to be deposited manually. Payments can be made to the authorities using; PF – bank transfer, ESI – bank transfer, Income tax – bank transfer.

Bank transfers generally take 2-3 working days depending on the nature of payment.

Generally, banks are open Monday to Friday from 9.00 am to 4.00 pm for public and 9:00 am to 1:00 pm on the 1st and 3rd Saturday of every month. All banks are closed on a Sunday.

The Indian numbering system is specific to India and is also used in Bangladesh, Nepal, Pakistan and Sri Lanka. The term Lakh and Crore are commonly used in India to express large amounts, for example:

Rs1,50,000 is equal to 1.5 Lakhs

Rs10,000,000 is equal to 1 Crore Rupees

A company is required to have a legal entity established in order to process payroll in India.

For the registration of a company, please refer to the ROC (Registrar of Companies).

The necessary steps required for registering a company are as follows:

• Obtain Director Identification Number (DIN) online
• Filing the application Form DIN-1 online
• Obtain digital signature certificate online
• Reserve the company name with the Registrar of Companies (ROC) online
• Pay stamp duties online, file all incorporation forms and documents online and receive the certificate of incorporation
• Make a seal
• Visit an approved franchise or agent appointed by National Securities Depository Services Limited (NSDL) or Unit Trust of India (UTI) Investors Services Ltd to receive a Permanent Account Number (PAN)
• Obtain a tax account number for income taxes deducted at source from the Assessing Office
• Register with The Office of Inspector, Shops and Establishment Act
• GST Register for profession tax
• Register with employees’ Provident Fund Organization
• For any establishment who employs 20 or more employees and engages in any of the 187 industries and classes of business establishments throughout India, The Employees Provident Funds & Miscellaneous Provisions Act, 1952 is applicable.
• Register for medical insurance (ESIC) if employee strength is 10 or more.

Once the legal entity is established, in order to process payroll, the company needs to have the following:

• TAN (Tax Account Number) for tax,
• PAN (Permanent Account Number) for tax submission and TDS return filing
• GST (Goods & Services Tax)
• PF Number for the Social Security Scheme, and
• ESI Number for employee insurance

All above registrations need to be done along with registration of the company as per amended provisions.

Registrations for social security such as PF & ESI are taken care of by the company; it takes around 15-45 days for registrations to be completed. Other registrations such as PT and LWF are location specific.

An Employment Visa is granted to someone who is an employee of an Indian company or personnel who intend to do honorary work (without salary) with registered NGOs in India. The Embassy/Consulate may grant an Employment Visa, valid for a limited validity irrespective of the duration of the contract. Further extension up to 5 years could be obtained from MHA/FRRO in the relevant State within India. Please note that the validity of the Employment Visa begins from the date of issue by the High Commission of India and not from the date of travel on your application form. The duration of the Employment Visa is at the sole discretion of the issuing authority.

The following is required for a Visa Application: -

• Passport valid for a minimum of 180 days with at least two blank pages
• Correct visa fee
• Two recent 50mm*50mm size photographs (please check the photo specification)
• Duly filled and signed application form
• Duly filled additional form
• Duly filled Employment Visa Undertaking
• Copy of an employment contract signed by both parties. The contract should have a specific clause for payment of income tax in India
• Copy of the registration papers of company/companies in India offering the employment
• Copy of educational qualification documents

For foreigner nationals intending to visit for honorary work (without salary) with registered NGOs in India and applying for an ‘Employment Visa’, they are required to submit the following documents:

• Proof of employment letter/invitation letter for voluntary work from registered NGO
• Name and place of work in India
• Duration of the voluntary work

The financial year in India runs from the 1^st April to the 31^st March.

Income tax is payable by every employee at the rates fixed by the Finance Act on an annual basis.

Income Tax

Effective as of April 2020, new optional concessional tax rates called ‘new tax regime’ have been introduced. Those who opt for these concessional new tax regimes has to forgo some tax exemptions/deductions.

Further, effective April 2023, new tax regime is default tax regime. Those who want to go with old tax regime, can opt for the same and avail some tax exemptions/deductions.

Tax Rates for Old Tax Regime

India income tax slabs 2023-2024 (Assessment Year 2024-2025) for general taxpayers and women.

India income tax slabs 2023-2024 (Assessment Year 2024-2025) for senior citizens (between 60 and 80 years of age).

 India income tax slabs 2023-2024 (Assessment Year 2024-2025) for very senior citizens (80 years of age and above)

New Tax Regime/Concessional Tax Rates

New tax regime rates are the same for all categories of tax payers.

In addition, a rebate will be available be available as following:

Old tax Regime: Available for resident Individuals whose income does not exceed INR 5,00,000 for the amount of INR 12,500 or their actual tax payable, whichever lower.

New tax Regime: Available for resident Individuals whose income does not exceed INR 7,00,000 for the amount of INR 25,000 or their actual tax payable, whichever lower.

Surcharge on tax is applicable at given rates if taxable income falls in the below ranges:            

Cess: Health and Education Cess (HEC) @ 4% on income tax (inclusive of surcharge, if applicable) shall be chargeable.

Any individual who is present in India for:

1. 182 days during the current year, or for
2. 60 days during the current year and 365 days during the preceding 4 years is classified as a resident and is therefore a resident tax payer.

Tax rates are different for Non-Resident Indians (NRI) who resides in India for less than 182 days in the current year or 365 days during the preceding 4 years.

Amendment (applicable from FY 2020-21):

1. An individual shall be deemed to be a resident but not an ordinarily resident if the below 3 conditions are met:
2. Is an Indian citizen
3. Total Income (other than income from foreign sources) exceeds INR 1500000 during relevant financial year, and
4. Is not liable to tax in any other country by reason of domicile or any other criteria of similar nature

Income tax payments have to be paid by the seventh of every month with the penalty for a late submission being 1.5% per month of the amount outstanding.

Calculation Example

Comparative tax calculation for old vs new tax regime

The Employees' Provident Fund Organisation (Hindi: कर्मचारी भविष्य निधि संगठन), abbreviated to EPFO, is a statutory body of the Government of India under the Ministry of Labour and Employment.

It administers a compulsory contributory Provident Fund Scheme, Pension Scheme and an Insurance Scheme. It is one of the largest social security organisations in India in terms of the number of covered beneficiaries and the volume of financial transactions undertaken.

Provident Fund Liability under the EPF & MP Act - 1952 is demonstrated below:

Pay includes basic wages, dearness allowance, retaining allowance and cash value of food concession.

Pensionable Salary is the employee’s salary or Rs15000 - whichever is less (international workers having EPS membership up to 31st August 2014 calculation of EPS on pay)

No contributions to the Pension Fund are made if:

• The employee is older than 58 years of age
• New PF Members (including international workers) joined on or after 1st September 2014 having basic pay of more than Rs15000 -

EDLI Salary: Pay or Rs15000/- whichever is less (including member more than 58 years)

International Workers (IW) refers to -

• Employee(s) having other than Indian passport
• Indian employee(s) working in SSA Counties (i.e. Belgium, Germany, Switzerland, Denmark, Luxembourg, France, Hungary, Netherlands, South Korea, Finland, Sweden, Czech Rep, Norway, Austria, Canada, Australia, Japan, Portugal, Quebec) who do not have a Certificate of Coverage.

The social security contributions i.e. PF have to be paid by 15th of every month.

The following interest and damage on delayed deposit of Pension Fund dues are applicable:

• Interest u/s 7Q of PF Act, 1952 – 12% per annum and
• Damages: Para 32A of EPF Scheme,1952

All the above-mentioned reporting documents can be submitted by the payroll provider on behalf of the company; however, the client signature is required.

All new employees are required to have a PAN card in order to pay tax which takes approximately 1 month to obtain.

The new employee should be registered with the authorities within 15 days of the second month of employment.

For an expat employee, passport and salary details will be required.

There are no legislative specifications of time scale for the final payment. However, if the employee has completed 5 years (4 years 240 days (if Saturday working)/ 4 years 190 days (if Saturday off)) of service, gratuity payment needs to be made within 30 days of departure.

It is usually preferable to make the F&F payment (final employee payments) within 30 days of departure.

Please note that salary of any month should be paid by 7th of following month.

Provident Fund and ESI authorities are require to be informed of leaving employees.

Reports

By law, payroll reports must be kept for a minimum of 8 years.

 It is legally acceptable in India to provide employees with online payslips. Payslips are issued in English only.

Payslip Example

Holiday Accrual/Calculations

The minimum holiday entitlement is location specific.

If entitled, leave encashment is paid as per amount equivalent to salary for leave credit balance (earned leave) days.

Maternity Leave

A female employee will be granted paid maternity leave for up to 26 weeks as required by the relevant applicable legislation. The law will apply to all establishments employing 10 or more people and the entitlement will be for the first two children. For the third child, the entitlement will be 12 weeks.

In the case of miscarriage, the employee is entitled to 6 weeks of paid leave.

The act also requires every establishment with 50 or more employees to provide crèche facilities within a prescribed distance. The woman will be allowed four visits a day to the crèche, this will include her interval for rest. It has also made a provision under which an employer can permit a woman to work from home, if the nature of work assigned permits.

Paternity Leave

It is not a statutory requirement, but companies often give paternity leave for between 7 to 10 days.

Sickness

 Sickness leave is location specific.

National Service

 There is no mandatory National Service in India.

In India, the normal working week is Monday to Saturday inclusive.

Standard working hours are 9.30 am to 6.00 pm.

As per labour laws of India, employee is entitled to only benefits specified in the various acts. Beyond that, employer can provide any benefits.

Expenses

Expenses accrued for business cannot be a part of the salary structure but can be paid as reimbursement on submission of the valid invoices and receipts as tax-free.

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.