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INDIA
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India Payroll, PEO and EOR solutions: Employment Contracts
Types of visas:
- Employment Visa: Valid for contract period or up to 5 years. Foreigners will need proof of employment contract to apply for this visa.
- Business Visa: Valid for contract period or up to 5 years. For foreigners looking to do business in India or seeking new business opportunities in India.
- Project Visa: For highly skilled foreigners wanting to work in India ( Power of Steel industry ). Valid for project duration or up to 1 year.
- X Visa/Entry Visa: Valid for up to 5 years. For individuals of Indian Origin or for foreign nationals holding a business, employment or project visa.
Work Permits:
Foreigners don’t need a specific work permit if they have an employment visa. However, individuals from China, Afghanistan or Pakistan may need work permits.
PAID TIME OFF
Annual Vacation
In India, unlike in most other countries, leave policies are governed by the laws of the state in which the company’s legal entity is established, not the state in which the employee works. Employees in India are entitled to a type of leave known as earned leave. The minimum amount of earned leave for private sector employees is typically 15 days per year, but this varies by state. If an employee does not use their earned leave, they are entitled to carry it over to the following year. Employers in India may provide their employees with unlimited PTO. If an employer provides unlimited PTO, the employer must keep track of all leave taken in order to comply with Indian laws.
Sick
The national government of India requires employees to take at least 12 days of paid sick leave (or casual leave) per year. This leave covers employee illnesses as well as bereavement and caregiving for sick family members. When employees take sick leave for more than three days in a row, their employers have the right to request a doctor’s note.
Maternity
All companies in India are now required to provide maternity leave to their employees. Employees are eligible for maternity leave after having worked for the company for at least 80 days in the previous 12 months. Maternity leave requirements vary by state, but the national government of India requires 26 weeks of paid leave for employees with fewer than two children (not including the child due to be born) and 12 weeks for employees with two or more children. Adoption and surrogacy children are also entitled to 12 weeks of maternity leave under the law. Maternity leave can be taken as early as eight weeks before the due date. New mothers are guaranteed at least two additional nursing breaks during the day until the child is 15 months.
Paternity
Companies in India are not required to provide employees with paternity or flexible parental leave. However, private employers have begun to offer paternity leave as an optional benefit.
Family
N/A
National Holidays
14 paid public holidays in India.
Other Paid Time Off
N/A
STATUTORY EMPLOYEE BENEFITS
Unemployment
Workers who lose their jobs through no fault of their own are eligible for unemployment benefits (on account of closure of factories, retrenchment or permanent invalidity of at least 40 percent arising out of non-employment injury). Unemployment benefits are equal to 50% of an insured worker’s daily average earnings. It is paid for up to one year to employees who have contributed for at least three years. Beneficiaries and their dependents are also given free medical care during this time.
Workers Compensation
In India, there is a Workers Compensation Act. The act allows workers and their dependents to seek compensation from their employers in the event of a work-related accident or injury that results in their death or disability.
Social Security
Employee: 12% of basic salary (10 percent for certain categories of industry; businesses covered before September 22, 1997, with fewer than 20 employees; and certain other cases). The maximum monthly wage for contribution purposes is 15,000 rupees.
Employer: 8.33 percent of monthly payroll for social insurance; none if 58 or older (old-age, disability, and survivor pensions), plus 0.5 percent of monthly payroll (survivor benefit). The maximum monthly wage for contribution purposes is 15,000 rupees. Provident fund: 3.67 percent of monthly payroll plus 0.5 percent for administrative costs; 8.33 percent of monthly payroll for employees aged 58 and up. Employer liability: 4% of monthly payroll on average.
Retirement
Pension for the elderly (Superannuation Pension, social insurance): The insured receives a monthly pension based on his or her pensionable service and earnings. The monthly minimum pension is 1,000 rupees. A lump sum equal to the total employee and employer contributions plus accrued interest less previous withdrawals is paid as a partial pension. Early pension: The pension is reduced by 4% for each year claimed before reaching the normal retirement age. Deferred pension: For one year of deferral, the pension is increased by 4%; for two years, the pension is increased by 8.16%. Benefit adjustment: Benefits are adjusted annually by the central government based on an actuarial evaluation.
Health
Although India has public healthcare, the quality and availability vary greatly from region to region. Because the quality of public healthcare is generally lower than that of private healthcare, employers use private health insurance to attract top talent. In comparison to other parts of the world, private healthcare plans in India are not expensive. Employers can either provide a stipend for employees to purchase their own coverage or directly provide a plan.
PRIVATE EMPLOYEE BENEFITS
Workers Compensation
Private workers compensation is not available in India.
Retirement
There are no private retirement schemes available in India.
Health
Private healthcare is available in India.
Insurance
Private life insurance is available in India.
PERSONAL INCOME TAX
Tax Year
The tax year in India is a calendar year from 1st April to 31st March.
Tax Tables
Individuals in India are taxed primarily based on their residency status during the relevant tax year. Individuals’ residential status is determined independently for each tax year and is based on their physical presence in India during the relevant tax year and previous years.
Taxable Income | Rates of Taxes |
0 – 250 000 | 0% |
250 000 – 500 000 | 5% |
500 000 – 1 000 000 | 20% |
1 000 000 + | 30% |
Taxation Method
In India, taxes are primarily divided into Central and State Government taxes, with two types of taxes:
- Direct Taxation
- Indirect Taxation
In India, while direct taxes are levied on your earnings, indirect taxes are levied on your expenses. The earning party, whether an individual, a HUF, or a company, is responsible for depositing the direct tax liability. Indirect taxes are primarily collected by corporations and businesses that provide services and products. As a result, it is these entities’ responsibility to deposit indirect taxes.
Double Taxation
India has multiple double tax agreements (DTA) with other countries.
Residence Requirements
In the tax year, an individual is said to be a resident if he or she is:
- physically present in India for 182 days or more during the tax year (182-day rule),
- or physically present in India for 60* days or more during the relevant tax year and 365 days or more in total in the four preceding tax years (60-day rule).
Payroll Calendars
There are no predetermined dates on which employees must be paid. Weekly, Bi-weekly, fortnightly and monthly payrolls are acceptable.
Rebates & Tax Credits
Tax incentives can be deducted from taxable income. Income, investment, or expenditure-based incentives are all possible. Some of these are listed below:
- Income-based incentives include a tax holiday on profits earned by businesses engaged in infrastructure development or SEZ development.
- Investment-based incentives include investments in certain mutual funds, infrastructure bonds, life insurance, bank fixed deposits, and government securities, among other things.
- Expense or payment-based incentives: Certain payments, such as medical insurance premiums, donations to approved trusts or organizations, and so on, are tax-deductible.
Health Insurance
Although India has public healthcare, the quality and availability vary greatly from region to region. Because the quality of public healthcare is generally lower than that of private healthcare, employers use private health insurance to attract top talent. In comparison to other parts of the world, private healthcare plans in India are not expensive. Employers can either provide a stipend for employees to purchase their own coverage or directly provide a plan.
Unemployment
Workers who lose their jobs through no fault of their own are eligible for unemployment benefits (on account of closure of factories, retrenchment or permanent invalidity of at least 40 percent arising out of non-employment injury). Unemployment benefits are equal to 50% of an insured worker’s daily average earnings. It is paid for up to one year to employees who have contributed for at least three years. Beneficiaries and their dependents are also given free medical care during this time.
Social Security
Employee: 12% of basic salary (10 percent for certain categories of industry; businesses covered before September 22, 1997, with fewer than 20 employees; and certain other cases). The maximum monthly wage for contribution purposes is 15,000 rupees. Employer: 8.33 percent of monthly payroll for social insurance; none if 58 or older (old-age, disability, and survivor pensions), plus 0.5 percent of monthly payroll (survivor benefit). The maximum monthly wage for contribution purposes is 15,000 rupees. Provident fund: 3.67 percent of monthly payroll plus 0.5 percent for administrative costs; 8.33 percent of monthly payroll for employees aged 58 and up. Employer liability: 4% of monthly payroll on average.
PAYROLL ELEMENTS
Income
India Payroll Elements
Salary, earnings, bonuses, overtime pay, taxable benefits, allowances, and certain lump sum perks are examples of remuneration (revenue from employment). Profits or losses made by a company or trade. Income or profits derived from an individual’s status as a trust beneficiary.
Bonuses
Statutory bonus is a legal requirement. The payment of statutory bonuses under the Payment of Bonus Act is a right of the employee, not a choice of the employer.
Allowances
N/A
Benefits in Kind
N/A
Investment Income
Capital gains from the sale or transfer of capital assets are taxable in the tax year in which they are sold or transferred. Capital assets include all types of property, including stocks and shares, land and buildings, and goodwill (but exclude personal effects except stock-in-trade, stores, and raw materials held for business purposes). Jewellery is also classified as a capital asset.
Long-term capital assets are those held for more than 36 months (12 months for shares or securities listed on a recognized stock exchange in India/equity oriented mutual funds/zero coupon bonds and 24 months for immovable property or unlisted shares), while short-term capital assets are those held for less than 36 months.
Long-term capital gains are taxed at prescribed advantageous rates (plus applicable surcharge and health and education cess). Short-term capital gains are added to the individual’s taxable income and taxed at the normal slab rates.
Retirement Funding
Pension for the elderly (Superannuation Pension, social insurance): The insured receives a monthly pension based on his or her pensionable service and earnings. The monthly minimum pension is 1,000 rupees. A lump sum equal to the total employee and employer contributions plus accrued interest less previous withdrawals is paid as a partial pension. Early pension: The pension is reduced by 4% for each year claimed before reaching the normal retirement age. Deferred pension: For one year of deferral, the pension is increased by 4%; for two years, the pension is increased by 8.16%. Benefit adjustment: Benefits are adjusted annually by the central government based on an actuarial evaluation.
Health Insurance
Although India has public healthcare, the quality and availability vary greatly from region to region. Because the quality of public healthcare is generally lower than that of private healthcare, employers use private health insurance to attract top talent. In comparison to other parts of the world, private healthcare plans in India are not expensive. Employers can either provide a stipend for employees to purchase their own coverage or directly provide a plan.
Risk Insurance
N/A
Taxable Income
The total remuneration/salary received from an employer for services performed in India is taxable in India. Taxable income includes all amounts derived from an office of employment, whether in cash or in kind. Aside from salary, fees, bonuses, and commissions, some of the most common forms of remuneration include allowances, reimbursement of personal expenses, education payment, and perquisites or benefits provided by the employer at no cost or at a reduced rate. All such payments, whether made directly to employees or on their behalf, are included.
Allowable Deductions
There are no deductions for interest or taxes paid to tax authorities. Contributions to approved charities and, to a lesser extent, allowances for children’s education/hostel expenses received from the employer are allowable deductions up to certain limits. A tax deduction of up to INR 150,000 is available for investments made during the tax year in certain eligible schemes in India, namely: life insurance premiums on the life of oneself, spouse, or any child. Employee contribution to a recognized provident fund Contribution to the National Pension System/Public Provident Fund (NPS). Contribution to an Indian mutual fund’s tax plan.
Tuition fees for any university, college, school, or other educational institution in India for the individual, spouse, or child’s full-time education. Repayment of a mortgage (principal), etc.
An additional deduction of up to INR 50,000, in addition to the aforementioned limit of INR 150,000, will be available on the individual’s contribution to a government-notified pension scheme. In respect of the employer’s contribution to the NPS, an additional deduction of up to 10% (14 percent if made by the Central Government) of salary is available. At the time of retirement, an individual can withdraw up to 60% of the corpus fund, with the remaining 40% required to be invested in an annuity plan. Such withdrawals of up to 60% of the corpus fund are tax-free. This is true for all subscribers. Furthermore, nothing would be taxable if the nominee received the amount due to death. In the case of a partial withdrawal from the NPS by an employee, 25% of their own contribution is tax-free in the year of withdrawal.
PAYROLL TAXES AND EMPLOYER CONTRIBUTIONS
Payroll Taxes
N/A
Unemployment
Workers who lose their jobs through no fault of their own are eligible for unemployment benefits (on account of closure of factories, retrenchment or permanent invalidity of at least 40 percent arising out of non-employment injury). Unemployment benefits are equal to 50% of an insured worker’s daily average earnings. It is paid for up to one year to employees who have contributed for at least three years. Beneficiaries and their dependents are also given free medical care during this time.
Social Security
Employee: 12% of basic salary (10 percent for certain categories of industry; businesses covered before September 22, 1997, with fewer than 20 employees; and certain other cases). The maximum monthly wage for contribution purposes is 15,000 rupees. Employer: 8.33 percent of monthly payroll for social insurance; none if 58 or older (old-age, disability, and survivor pensions), plus 0.5 percent of monthly payroll (survivor benefit). The maximum monthly wage for contribution purposes is 15,000 rupees. Provident fund: 3.67 percent of monthly payroll plus 0.5 percent for administrative costs; 8.33 percent of monthly payroll for employees aged 58 and up. Employer liability: 4% of monthly payroll on average.
Workers Compensation
The Workmen Compensation Act of 1923 (the “Act”) requires employers to compensate employees who are injured or killed while doing their responsibilities. According to the Workers Compensation Act of 1923, an employer is required to reimburse his employees for injuries caused by an accident. If a worker dies or is permanently and totally disabled as a result of the injury, the company must pay PKR 200.000 to the employee’s dependents (limit raised to PKR 300,000 in KPK, PKR 400,000 in Punjab and PKR 500,000 in Sindh).
ADMINISTRATION
Income
Individuals in India are taxed primarily based on their residency status during the relevant tax year. Individuals’ residential status is determined independently for each tax year and is based on their physical presence in India during the relevant tax year and previous years.
Payroll Taxes
N/A
Unemployment
Workers who lose their jobs through no fault of their own are eligible for unemployment benefits (on account of closure of factories, retrenchment or permanent invalidity of at least 40 percent arising out of non-employment injury). Unemployment benefits are equal to 50% of an insured worker’s daily average earnings. It is paid for up to one year to employees who have contributed for at least three years. Beneficiaries and their dependents are also given free medical care during this time.
Social Security
Employee: 12% of basic salary (10 percent for certain categories of industry; businesses covered before September 22, 1997, with fewer than 20 employees; and certain other cases). The maximum monthly wage for contribution purposes is 15,000 rupees.
Employer: 8.33 percent of monthly payroll for social insurance; none if 58 or older (old-age, disability, and survivor pensions), plus 0.5 percent of monthly payroll (survivor benefit). The maximum monthly wage for contribution purposes is 15,000 rupees. Provident fund: 3.67 percent of monthly payroll plus 0.5 percent for administrative costs; 8.33 percent of monthly payroll for employees aged 58 and up. Employer liability: 4% of monthly payroll on average.
Workers Compensation
The Workmen Compensation Act of 1923 (the “Act”) requires employers to compensate employees who are injured or killed while doing their responsibilities. According to the Workers Compensation Act of 1923, an employer is required to reimburse his employees for injuries caused by an accident. If a worker dies or is permanently and totally disabled as a result of the injury, the company must pay PKR 200.000 to the employee’s dependents (limit raised to PKR 300,000 in KPK, PKR 400,000 in Punjab and PKR 500,000 in Sindh).
Statutory Benefits
Statutory benefits in India include time off for the 14 national holidays, as well as 15 days of leave per year.
Employee Benefits
All employees are entitled to time off, including 14 paid public holiday days.
LEGISLATION
The Industrial Relations Code 2020
The Code on Social Security 2020
The Occupational Safety
Health and Working Conditions Code, 2020
The Code on Wages 2019
STATUTORY BODIES
Department of Revenue
