India payroll and benefits guide

What global businesses need to know about payroll in India

This is an incredibly important time for anyone running a business and running payroll in India. The world’s most populous country (now approaching 1.5 billion people) is currently at the start of sweeping reforms to its labor codes, aimed at simplifying regulations, improving welfare for its population and boosting productivity.

The reforms will combine and consolidate 29 existing laws into four detailed codes, each of which will cover an important area of business:

Wages: including greater standardization of wage structures, and new rules around working hours and overtime
Industrial Relations: including easier hiring and dispute resolution processes
Social Security: expanding the reach of key employee benefits to informal workers, such as those in the gig economy
Occupational Health and Safety: improving safety standards, and introducing compulsory employee health check-ups

As a result, some key factors of payroll and employment law will be adjusted over the next few years. It’s also important to note that the implementation of the new reforms is being phased in, according to the size of a company. As things stand, businesses with headcounts of over 500 will be expected to comply by October 2025, those with over 100 by 2026, and those with under 100 by 2027.

All of this means that payroll in India is in a state of flux – and that’s before considering all the complexity that was already in place. This guide tells you all the key facts at the time of writing, but we recommend checking this page regularly for further updates as the details of the new reforms become clearer.

Getting Started with India Payroll

The good news is that registering a business in India is relatively inexpensive and most fees come in at the rupee equivalent of just a few pounds or dollars. The bad news, however, is that there are many administrative hurdles to negotiate.

Companies will need to perform all of the following registration procedures, ideally in this order:

Class 2 digital signature certificate: issued online for two-year periods by the Ministry of Corporate Affairs (MCA)
Director ID numbers: issued by the MCA for each person appointed as a company director
Name registration: the company name is formalized with the MCA’s Registrar of Companies
Company detail submission (SPICe): drafting and filing the Memorandum and Articles of Association
Stamp dues: payment of these will then enable the procurement of the Certificate of Incorporation
Permanent Account Number (PAN): registration for the transfer of income tax payments to India’s Income Tax Department
Bank account: opening an in-country account in India, which requires the Certificate of Incorporation and PAN number among other documentation
Medical insurance: registration with the Employees’ State Insurance Corporation
VAT: registration with the Department of Trade and Taxes
Tax Account Number (TAN): required for all people who will be collecting or deducting income tax at source

As an aside, it’s important to note some of the traditional and cultural characteristics around doing business in India. Making an effort to build relationships with colleagues, such as asking them about their family, is very important. Additionally, you should only use your right hand wherever possible, and should always have business cards with you to present to new contacts.

Employment Considerations

Having a written employee contract is not required in India, but is advisable. Failing to establish employment agreements can complicate payroll or cause problems if a business is in an industry that is dominated by collective bargaining associations, as the pharmaceutical, banking, and auto industries are.

It’s important to note that Indian legislation recognizes two categories of employees, called workmen and non-workmen, the difference being that non-workmen are generally those in managerial roles. At present, only workmen are covered under the provisions and protections of the Industrial Disputes Act; however, as the new reforms intend to simplify dispute resolution processes, it is possible that this will change in the near future.

Working hours in India can vary from state to state and from industry to industry. The national standard is 40 hours, over five eight-hour days, but this can be extended to 48 hours with the agreement of the employee. When the reforms are introduced, businesses will have the option of switching to a four-day working week, with employees working four 12-hour shifts and getting three days off instead.

Anything above 48 hours a week is considered overtime, for which the employee should be paid double their normal rate. Employers who break rules around working hours are punished severely, up to a maximum of two years in prison and a fine of 100,000 rupees (also known as one lakh, approx. £890; $1,180; €1,040). One of the new regulations put forward in the forthcoming labor code reforms is the capping of overtime to a maximum of 125 hours per quarter.

Probationary periods are between three and six months, varying according to the type of job and the seniority of the employee concerned. Removing any ambiguity from this is one of the many reasons why a written employment contract is recommended. Notice periods are a minimum of 30 days and payments can be made in lieu of notice by mutual agreement.

Compensation, Bonuses & Severance Pay

India has a national minimum wage rate, which is currently 178 rupees per day (approximately £1.60; $2.10; €1.85) and 5,340 rupees per month (approx. £45; $65; €55). However, local and state governments apply their own rates which vary across different states, industries, and skill levels of workers. It’s estimated that the number of minimum wage rates in India runs into the thousands.

Many Indian workers are eligible for statutory bonuses, and the payment of these bonuses is a key part of the country’s working culture. If any employee works in a company employing at least 20 people and earns 21,000 rupees per month (approx. £185; $245; €220) or less, they are entitled to a bonus of between 8.33% and 20% of their annual salary. It’s also common to offer a Diwali bonus, around the time of the annual festival (which falls in October or November); this bonus is exempt from income tax if no greater than 5,000 rupees (approx. £45; $60; €50).

It’s also common for Indian employees to receive a range of employee benefits and allowances, including private pensions, wellness and meal allowances, additional annual leave and paid paternity leave.

Severance pay entitlement is 15 days of wages per year of service, plus potentially certain other severance-related benefits such as statutory bonus payments.

Tax and Withholding Considerations

The Indian income tax system has undergone a series of revisions in recent years and you should watch out for possible further changes in the future.

For 2025/26, income tax is levied progressively over six bands. The first 400,000 rupees earned per year (approx. £3,550; $4,700; €4,150) are exempt from any income tax. New bands take effect at 400,000-rupee intervals, across 5%, 10%, 15%, 20% and 25%. In the highest band, earnings above 2.4 million rupees (approx. £21,300; $28,200; €25,000) are taxed at 30%. There are also a range of exemptions and rebates that employees can claim on an individual basis.

On top of this, there are also surcharges on higher earners that kick in on any earnings above 5 million rupees a year (approx. £44,300; $58,900; €52,100) – these surcharges increase in size as earnings increase.

Social security contributions are as follows:

Employee’s Provident Fund and Pension Scheme: 12% employer, 12% employee
State Insurance: 3.25% employer, 0.75% employee (only applicable to employees who earn 21,000 rupees a month or less)
Health and Education: 4% employee
Gratuity: for employees with at least five years’ service, employers should pay 15 days’ wages per year into a retirement fund

Foreign nationals working in India are also required to make these payments, unless they come from one of a select group of countries that have bilateral social security agreements with India.

Leave and Holiday Considerations in India

India’s public holiday system is complex. There are only five days per year that are celebrated throughout the country, but there are dozens more that are observed in different combinations of India’s 36 states and union territories. Employees are entitled to 12 days off for public holidays each year in total, and have the right to swap national holidays for regional and religious holidays in terms of time off.

Paid leave entitlement in India is a minimum of 15 days, although it’s commonplace for employers to provide more (24 days is a typical offering).

Paid sick leave entitlement varies substantially across different industries and even from one company to the next. Many businesses will provide an allocation of between 10 and 12 days of sick leave per year; employees who have paid Employee’s State Insurance contributions will have 80% of their wages covered.

Maternity leave is 26 weeks for a first or second child, and 12 weeks for any further children a mother has; employers cover full salary during this time. India does not oblige employers to provide paid paternity leave; at the time of writing, only male government employees are entitled to 15 days of paid leave. Similarly, there is no provision for any additional parental leave.

Payroll in India: A summary

India was already a complicated place to run payroll, but the gradual implementation of the new reforms will only serve to make things even more difficult over the next couple of years. Having easy access to country-specific expertise is essential to understand changes as they happen, and to make adjustments to your payroll approach accordingly. If you don’t feel that you have that expertise in-house, then working with a global payroll partner is more important than ever.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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