Our guide to Payroll in India

Doing Business in India

Investing in India

The Indian economy is the third largest in the world in terms of purchasing power. Goldman Sachs Research projects India will have the world’s second-largest economy by 2075. 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.

Basic Facts about India

Population: 1.450 billion (World Bank, 2024)

Capital: New Delhi

Major Language: Hindi, English

Monetary Unit: Rupee

Main Exports: Software, Petrochemicals, Pharmaceuticals, Precious Stones, Textiles, Machinery, Iron Ore, Chemicals, Automobiles

Internet Domain: .In

International Dialing Code:+91

How to Say - Common Phrases (India – Hindi)

Hello: नमस्ते (Namaste)

Good Morning: शुभ प्रभात (Shubh prabhaat)

Good Evening: शुभ संध्या (Shubh sandhyaa)

Do you speak English?: क्या आप अंग्रेज़ी बोलते हैं? (Kya aap angrezi bolte hain?)

Goodbye: अलविदा (Alvida) / फिर मिलेंगे (Phir milenge – "See you again")

Thank you: धन्यवाद (Dhanyavaad)

See you later: फिर मिलते हैं (Phir milte hain)

Registrations and Establishing an Entity

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 7-10 days for registrations to be completed. Other registrations such as PT and LWF are location specific.

Banking

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 1-3 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

Working Week

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

Standard working hours are 9.30 am to 6.00 pm (48 hours weekly limit).

Employment Law

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.

Overtime

• If an employee works more than the normal working day (i.e., beyond the number of hours fixed by the government—generally 8 hours/day), overtime becomes payable.
• Also applies when an employee works on a weekly rest day and no substituted rest day is given later.
• Overtime must be paid at not less than twice (2×) the normal rate of wages.

Maternity Leave

• Eligibility requires 80 days of work in the preceding 12 months (ESIC: 70 days contribution).
• Maternity leave entitlement:
• 26 weeks for first two surviving children (max 8 weeks pre‑natal).
• 12 weeks for women with ≥2 surviving children (max 6 weeks pre‑natal).
• 12 weeks for adoptive/commissioning mothers of a child <3 months.
• Benefit payable at average daily wage / minimum wage / ₹200 per day (whichever higher), released in two instalments.
• Medical bonus of ₹3,500 if no free pre‑/post‑natal care is provided.
• Additional leave:
• 6 weeks for miscarriage / medical termination.
• Up to 1 month for pregnancy‑related illness.
• Nursing breaks: two 15‑minute breaks daily until child reaches 15 months, plus travel time to crèche.
• Crèche mandatory for establishments with 50+ employees; if unavailable, minimum ₹500/month crèche allowance.
• Protection from dismissal during maternity period, except in proven cases of gross misconduct.

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.

Tax & Social Security

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

From FY 2026-27, there will be only ‘TAX YEAR’ and there will be no terms like ‘Previous year’ and ‘Assessment year’

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

Income Tax

The Income Tax Act, 2025 comes into effect from 1 April 2026 which replaces the existing Income Tax Act, 1961. The New bill removes redundant and repetitive provisions, eliminates intricate language and re-organises sections logically.

The tax rates under Section 202 as per Income Tax Act, 2025 (erstwhile section 115BAC) i.e., the New Tax Regime or the Default Tax Regime are documented below. The Old regime rates remain unchanged.

Tax Rebate

The rebate u/s 87A for taxpayers filing tax returns under the New Tax Regime increased to INR 60,000.00 from the previous limit of INR 25,000.00.

Effective 1st January 2025, the Haryana Labour Welfare Board on 7 March 2025 announced new Labour Welfare Fund (LWF) contribution rates for both employees and employers.

The new LWF contribution rates are as follows:

Effective 1 October 2024, the Greater Chennai Corporation – Professional Tax through circular dated 20 January 2025 has announced new contribution slab rates for half-yearly Professional Tax (PT).

The new PT contribution rates are as follows:

Social Security

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:

Effective 21 November 2025, "wages" means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes,—

(i) basic pay;

(ii) dearness allowance; and

(iii) retaining allowance, if any,

but does not include––

(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;

(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;

(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;

(d) any conveyance allowance or the value of any travelling concession;

(e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;

(f) house rent allowance;

(g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;

(h) any overtime allowance;

(i) any commission payable to the employee;

(j) any gratuity payable on the termination of employment;

(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the per cent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.

Explanation.––Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee;

Pensionable Salary is the Wages or Rs15000 - whichever is less (international workers having EPS membership up to 31^st August 2014 calculation of EPS on Wages)

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 1^st September 2014 having Wages of more than Rs15000 -

EDLI Salary: Wages 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 15^th 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 upto 13-06-2024.

With effect from 14-06-2024 damages rate is 1% per month.

Payroll

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 pay slips.

Pay slips are issued in English only.

Time limits for wage payment:

• Daily rated: end of shift
• Weekly rated: last working day of the week (before the weekly holiday)
• Fortnightly rated: within 2 days of the end of the fortnight
• Monthly rated: by the 7th of the following month
• On separation (dismissal, retrenchment, resignation, closure): within 2 working days of such event.

Mode of wage payment & wage period:
Wages may be paid in cash, by cheque, bank credit or electronic transfer. The wage period must not exceed one month.

New Starts

All new employees are required to have a PAN card in order to pay tax which takes approximately 1 month to obtain. PAN of the employees should be linked to Aadhaar number to comply with the operative status of the PAN. In the event of missing or inoperative PAN, flat income tax is deductible at higher rate.

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

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.

Leavers

• Full & Final (Fixed Salary along with Overtime) must be processed within two working days of the employee’s last working day effective 21^st November 2025
• Gratuity for permanent employees is payable after completing 5 years (4 years 240 days (if Saturday working)/ 4 years 190 days (if Saturday off)) of service.
• Fixed-term employees are now eligible for gratuity after completing 1 year of continuous service effective 21^st November 2025
• Gratuity must be paid within 30 days of exit, failing which interest/penalty applies.
• PF and ESI authorities must be notified upon an employee’s separation as part of statutory compliance.

Employee Benefits

Under India’s new Labour Codes—the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health & Working Conditions (OSHWC) Code, 2020—employees are entitled to all statutory benefits and protections defined within these Codes. Beyond these mandatory provisions, employers are free to offer any additional or enhanced benefits at their discretion.

Labour Codes are available at:

https://www.labour.gov.in/offerings/schemes-and-services/details/labour-codes-gzNzQzMtQWa

Minimum Wages

• Universal Minimum Wage Application: The statutory right to minimum wages is now extended to all employees across all sectors (organised, unorganised, commercial, and industrial). This replaces the previous fragmented system, in which minimum wages were restricted to specific "scheduled employments", leaving large sections of the workforce unprotected.
• The "Floor Wage" Mechanism: The Central Government will fix a national "Floor Wage" based on minimum living standards and geographic areas.
• State governments are legally prohibited from fixing minimum wages below this floor. If a state's existing minimum wage is higher, it cannot be reduced, ensuring a non-negotiable baseline for income.
• Equal pay / no discrimination: No discrimination on the ground of gender in wages or during recruitment for the same or similar work.

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.

Visas & Work Permits

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

• Indian numbering system uses Lakh (1,00,000) and Crore (1,00,00,000)
• Leave, tax slabs, and welfare contributions vary by state
• PAN, TAN, GST, ESI, PF registration is mandatory for compliance

Further Information For more information, or assistance with India tax enquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview 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.