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Shivendu Anand
Payroll references

India

Indian Rupee (INR, ₹)Tax year 1 April – 31 March (new Income Tax Act, 2025 uses a single "Tax Year" from 1 Apr 2026)Last reviewed June 2026

Educational reference. State-level levies and ceilings change frequently — verify at the official links before relying on any figure.

Overview

Indian payroll is among the most statutorily complex in Asia because compliance is split across central and state authorities. Salaries are paid in rupees (₹), almost always monthly. The distinctive feature is multi-statutory layering: one payslip can simultaneously attract central income-tax withholding (TDS), two central social-security schemes (EPF and ESI), and several state-level levies (Professional Tax, Labour Welfare Fund) whose rates differ by state. India is mid-transition through its largest labour reform in decades — the four Labour Codes came into force 21 November 2025, and a new Income Tax Act, 2025 takes effect 1 April 2026.

Payroll cycle & pay dates

Monthly payroll is universal, typically paid on or around month-end (commonly the last working day, or 1st–7th of the following month). Wages must be paid by deadlines under the wage legislation (historically the 7th/10th, now consolidated into the Code on Wages, 2019). Itemised payslips are mandatory. Compensation is structured as CTC (Cost to Company) → Gross → Net: CTC includes employer contributions; gross is earnings before deductions; net is take-home after TDS, employee EPF/ESI and Professional Tax.

Income tax / withholding (TDS on salary)

Employers deduct TDS under Section 192 of the Income Tax Act and deposit monthly. Two regimes coexist: the new regime is the default, with the old regime (preserving deductions like 80C, HRA) available by election. New-regime slabs for FY 2025-26 (as of June 2026): 0–₹4L nil; ₹4–8L 5%; ₹8–12L 10%; ₹12–16L 15%; ₹16–20L 20%; ₹20–24L 25%; above ₹24L 30%; a Section 87A rebate makes income up to ₹12 lakh effectively tax-free (standard deduction ₹75,000). Employers issue Form 16 (annual, due 15 June) and file Form 24Q quarterly. Income Tax Dept.

Transition (verify): the Income Tax Act, 1961 is repealed from 1 April 2026; for Tax Year 2026-27 the salary-TDS forms are being renumbered under the new Act — confirm current form numbers on the portal before filing.

Social security & statutory contributions

  • EPF (Provident Fund): employee 12% and employer 12% of basic + DA; employer share splits 8.33% to pension (EPS, capped) and 3.67% to PF, plus ~0.5% EDLI + 0.5% admin. Statutory wage ceiling ₹15,000/month (as of June 2026). EPFO · contribution rates PDF.
  • ESI: applies where monthly wages ≤ ₹21,000; employer 3.25%, employee 0.75% of gross (unchanged since July 2019). ESIC.
  • Professional Tax (PT): state-levied, constitutionally capped at ₹2,500/year; not all states levy it (e.g., Maharashtra, Karnataka, West Bengal) — verify each state's slab.
  • Gratuity & bonus: gratuity (Payment of Gratuity Act, 10+ employees) accrues after 5 years at 15 days' wages/year (last salary × 15 × years ÷ 26), ceiling ₹20 lakh (verify current). Statutory bonus 8.33%–20% for eligible lower-wage employees.

Mandatory benefits & leave

Leave is largely state-set (Shops & Establishments Acts) — typically earned/privilege leave (~15–21 days, partly carry-forward/encashable), sick leave and casual leave. Public holidays combine three national holidays (Republic Day, Independence Day, Gandhi Jayanti) with state-notified festival days. Maternity benefit: 26 weeks paid (first two children; 12 weeks thereafter) for women with 80+ days' service, plus crèche requirements for larger establishments. Minimum wages are set per state, skill level and sector — no single national figure. Notice/termination commonly 30–90 days per contract and S&E rules.

Employer registration & compliance

Register for TAN (for TDS), EPF (EPFO; mandatory at 20+ employees), ESI (ESIC; where applicable, 10+ in covered areas), Professional Tax and LWF (state). Cadence: monthly — TDS deposit by the 7th, EPF ECR + payment by the 15th, ESI payment by the 15th; quarterly Form 24Q; annual Form 16 + state/labour returns. Late deposits draw significant interest/damages (and late TDS can disallow the expense).

Common pitfalls

  • PF wage-ceiling interpretation — disputes over the ₹15,000 ceiling vs. actual basic, and which allowances count as "basic wages" (post-2019 rulings widened this).
  • State-by-state variation — PT slabs, LWF, minimum wages and leave differ; uniform pan-India rules cause non-compliance.
  • ESI threshold transitions — an employee crossing ₹21,000 mid-period must continue ESI until the period ends.
  • Labour Welfare Fund (LWF) — easily missed; small amounts due half-yearly/annually by state.
  • Tax-regime election — collect each employee's old-vs-new declaration; the new regime is the default if none is made.
  • Labour Codes / Income Tax Act 2025 transition — wage-definition changes (Codes in force Nov 2025) can raise PF/gratuity bases; new tax forms from April 2026.

Official resources

India payroll reference — Shivendu Anand