India Payroll Requirements: Complete Guide for Global Companies
Navigate India's complex payroll requirements with this comprehensive guide. Learn about PF, ESI, professional tax, and other mandatory deductions for compliant payroll processing.
Payroll Experts
Specialists in India payroll and compliance
Introduction to India Payroll
India's payroll system is complex with multiple mandatory deductions and compliance requirements. Understanding these requirements is essential for any company hiring in India.
Mandatory Payroll Components
1. Provident Fund (PF)
The Provident Fund is a retirement savings scheme mandatory for all employees earning more than ₹15,000 per month.
- Employee Contribution: 12% of basic salary
- Employer Contribution: 12% of basic salary
- Total Contribution: 24% of basic salary
- Contribution Ceiling: ₹1,800 per month (₹15,000 × 12%)
- Due Date: 15th of the following month
2. Employee State Insurance (ESI)
ESI provides medical and cash benefits to employees earning up to ₹21,000 per month.
- Employee Contribution: 0.75% of gross salary
- Employer Contribution: 3.25% of gross salary
- Total Contribution: 4% of gross salary
- Due Date: 15th of the following month
3. Professional Tax
Professional tax is levied by most states on salaried employees.
| State | Monthly Deduction | Annual Deduction |
|---|---|---|
| Maharashtra | ₹200 | ₹2,400 |
| Karnataka | ₹200 | ₹2,400 |
| Tamil Nadu | ₹2,500 (annual) | ₹2,500 |
| West Bengal | ₹2,500 (annual) | ₹2,500 |
| Gujarat | ₹200 | ₹2,400 |
4. Income Tax (TDS)
Tax Deducted at Source (TDS) is mandatory for all employees.
- Tax Slabs: Based on annual income
- Deduction: Monthly based on projected annual income
- Due Date: 7th of the following month
- Form 16: Annual tax certificate provided to employees
Income Tax Slabs (FY 2023-24)
| Annual Income | Tax Rate | Tax Amount |
|---|---|---|
| Up to ₹2.5 lakhs | 0% | ₹0 |
| ₹2.5 - 5 lakhs | 5% | ₹12,500 |
| ₹5 - 10 lakhs | 20% | ₹1,00,000 |
| Above ₹10 lakhs | 30% | Variable |
Payroll Processing Steps
1. Data Collection
- Employee personal information
- Bank account details
- PAN (Permanent Account Number)
- Aadhaar number
- Previous employment details
2. Salary Calculation
- Basic salary calculation
- Allowances and benefits
- Overtime calculations
- Bonus and incentives
3. Deduction Calculations
- Provident Fund deduction
- ESI contribution
- Professional tax
- Income tax (TDS)
- Other deductions (loans, advances)
4. Net Salary Calculation
Net Salary = Gross Salary - All Deductions
5. Compliance Filings
- PF returns filing
- ESI returns filing
- TDS returns filing
- Professional tax returns
Payroll Software Requirements
- Automated Calculations: Handle complex tax calculations
- Compliance Management: Ensure all statutory requirements
- Reporting: Generate required reports and returns
- Integration: Connect with banking and government portals
- Audit Trail: Maintain detailed records for audits
Monthly Compliance Calendar
| Due Date | Compliance | Description |
|---|---|---|
| 7th of month | TDS Payment | Deposit TDS to government |
| 15th of month | PF Payment | Deposit PF contributions |
| 15th of month | ESI Payment | Deposit ESI contributions |
| 21st of month | Professional Tax | Deposit professional tax |
| 31st of month | Payroll Reports | Generate monthly reports |
Annual Compliance Requirements
- Form 16: Annual tax certificate for employees
- Form 24Q: Quarterly TDS returns
- PF Annual Return: Annual PF reconciliation
- ESI Annual Return: Annual ESI reconciliation
- Professional Tax Return: Annual professional tax return
Common Payroll Mistakes to Avoid
- Incorrect tax calculations
- Missing statutory deductions
- Late payment of contributions
- Incorrect employee classification
- Poor record keeping
- Non-compliance with state-specific rules
Benefits of Using EOR Services for Payroll
- Expertise: Local payroll specialists
- Compliance: 100% statutory compliance
- Technology: Advanced payroll software
- Support: Dedicated payroll support team
- Cost Effective: No need for in-house payroll team
Conclusion
India's payroll requirements are complex but manageable with proper understanding and systems. EOR services can help ensure full compliance while you focus on growing your business.
