Expanding Your Business: Payroll in India

Getting Started in India

Entity Registration

Employers operating in India, including foreign companies with local employees, must complete several registrations before hiring or running payroll. These typically involve tax authorities, corporate regulators, and statutory social security bodies, with requirements varying depending on the entity structure and state of operation.

Businesses must generally register with the Ministry of Corporate Affairs (MCA) to establish a legal entity (e.g., Private Limited Company, LLP, or branch office).

Before employing staff, employers typically: 

• Obtain a Permanent Account Number (PAN) from the Income Tax Department
• Obtain a Tax Deduction and Collection Account Number (TAN) for payroll tax withholding (TDS/TCS)
• Register with the Employees' Provident Fund Organisation (EPFO)
• Register with the Employees' State Insurance Corporation (if applicable)

Additional resources for employers can be found at the Ministry of Labour & Employment site.

Tax, Pension & Social Insurance 

Employers in India are generally responsible for withholding income tax under the Pay As You Earn (PAYE) system, known locally as Tax Deducted at Source (TDS). India applies progressive income tax rates based on annual income.

Employers may be required to register employees for social security schemes, including:

• Employees’ Provident Fund (EPF)
• Employees’ State Insurance (ESI), where applicable

In addition, employers are generally required to:

• Deduct and remit TDS to the Income Tax Department
• File periodic TDS returns electronically
• Contribute to statutory social security schemes

Companies subject to income withholding obligations in India can find additional information through the Income Tax Department’s TDS Compliance resources.

Banking Requirements

Indian law does not strictly require foreign employers to maintain a domestic bank account; however, in practice, employers must operate through an Indian bank account to process payroll, remit taxes, and comply with regulatory requirements. 

Payments are typically made in Indian Rupees (INR) through domestic banking systems regulated by the Reserve Bank of India.

India Payroll Requirements

What is the Minimum Wage in India?

Minimum wages in India are governed by the Code on Wages, 2019, and are set at both central and state levels depending on:

• Industry
• Skill level
• Geographic location

The central government establishes a national floor wage, while states may set higher minimum wage rates. Minimum wage rates for 2026, along with historical wage data, are published and maintained by the Chief Labour Commissioner.

Social Insurance

India operates a statutory social security system funded by employer and employee contributions. Employers are expected to calculate and remit contributions through payroll processes.

Key statutory programs include:

• Provident Fund (retirement savings)
• Employee State Insurance (health insurance for eligible employees)
• Gratuity (end-of-service benefit under certain conditions)

The Ministry of Labour and Employment provides guidance on social security regulations.

Pay Frequency

Indian labor laws do not mandate a universal pay frequency; however, monthly payroll is the standard practice.

Payment frequency may depend on:

• Employment contracts
• State-specific Shops and Establishments Act
• Industry practices

Wages must generally be paid within prescribed timelines following the end of the wage period.

Overtime Laws

Under Indian labor laws, including the Factories Act and Shops and Establishments Acts (state-specific):

• Standard working hours are typically 8–9 hours per day and 48 hours per week
• Overtime is generally paid at twice the ordinary rate of wages

Specific rules vary by state and sector.

Payroll Taxes

The Indian tax year runs from April 1 to March 31.

Employers are responsible for withholding and remitting payroll taxes, including:

• Income tax (TDS)
• Professional tax (state-level, where applicable)
• Social security contributions (EPF, ESI)

Payroll filings are typically submitted electronically via the Income Tax portal and relevant statutory systems.

Retirement Requirements

India’s primary retirement savings system is the Employees’ Provident Fund (EPF), administered by the Employees' Provident Fund Organisation.

Key features:

• Mandatory for eligible employees
• Contributions are generally shared between employers and employees in accordance with statutory thresholds and wage definitions
• Retirement withdrawals permitted under statutory conditions

The standard retirement age is typically 58–60 years, depending on company policy and sector.

Termination Requirements 

Termination of employment in India is governed by various labor laws, including the Industrial Disputes Act.

Key considerations:

• Notice periods are typically defined in employment contracts or applicable laws
• Employers must provide notice or payment in lieu
• Additional protections apply to “workmen” under labor laws

Termination must comply with principles of natural justice and documented cause where required and depends on employee classification, tenure, and applicable law.

Redundancies

Redundancy (retrenchment) is regulated under the Industrial Disputes Act and depends on employee classification, tenure, and applicable law.

Employers must generally:

• Provide notice and government notification (in certain cases)
• Pay retrenchment compensation commonly calculated as approximately 15 days’ wages per year of service, subject to statutory conditions
• Follow last-in-first-out principles, unless justified otherwise

Public and Bank Holidays 

India observes a mix of national and state-specific public holidays.

National holidays include:

• Republic Day (January 26)
• Independence Day (August 15)
• Gandhi Jayanti (October 2)

Additional holidays vary by state and religious observances. For a full list of banking holidays, please visit the Reserve Bank of India’s website.