- Indian payroll is governed by five independent authorities: Income Tax Department, EPFO, ESIC, state PT departments, and LWF boards each with separate deadlines and penalty regimes.
- Basic salary must equal at least 50% of total CTC under the Code on Wages 2019, directly affecting EPF, gratuity, and statutory bonus calculations.
- Companies with fewer than 1,000 employees must pay wages by the 7th of the following month; larger companies have until the 10th.
- Employer EPF contribution is 12% of basic salary plus DA; ESI is 3.25% of gross salary for employees earning under INR 21,000/month both filed monthly.
- The new tax regime is now the default for TDS calculation; the old regime with HRA and 80C deductions is opt-in.
- Gratuity is mandatory after five years of continuous service calculated at 15 days' wages per completed year, tax-exempt up to INR 20 lakh.
- Full-and-final settlement covering salary, leave encashment, gratuity, and statutory bonus must be processed within two working days of separation.
India is one of the most layered payroll jurisdictions globally. It combines central legislation with state-specific rules across multiple authorities.
This guide covers Indian payroll obligations end to end. It is built for employers and HR teams managing compliance.
- Required pay cycles, payslip rules, and salary structure norms under the Payment of Wages Act and Wage Code
- Mandatory contributions to EPF, ESI, professional tax, Labour Welfare Fund, and TDS
- Statutory bonus, gratuity, maternity benefit, leave entitlements, and termination rules
- Filings, penalties, and how to set payroll management up cleanly from day one
Disclosure: Gloroots is featured in this guide. Read it as a transparent operator guide, not a sales page.
Whether or not you choose Gloroots, this guide will help you run Indian payroll cleanly and avoid common compliance failures.
What Makes Indian Payroll Complex?
Five separate authorities each impose distinct filing rules, contribution rates, and deadlines. These are the Income Tax Department, EPFO, ESIC, state professional tax departments, and state Labour Welfare Fund boards.
Employers must satisfy each independently.
Salary structure itself is regulated. Basic wages must equal at least 50% of total CTC under the Code on Wages 2019. This reshapes how organizations design compensation.
Professional tax and Labour Welfare Fund rules differ by state. Payroll teams must maintain separate compliance calendars, portal credentials, and remittance schedules for each operating location.
Tax slabs, contribution wage ceilings, and government circulars update frequently. Outdated rates in payroll systems trigger automatic penalties and interest that compound monthly.
What Is the Required Payroll Cycle in India?
Under the Payment of Wages Act, companies with fewer than 1,000 employees must pay wages by the 7th of the following month. Larger companies have until the 10th.
Common practice is end-of-month payout. Bi-weekly cycles are used in some IT and outsourcing firms but remain less common.
Itemized payslips are required under the Wage Code. Each must show earnings, statutory deductions, voluntary deductions, employer contributions, and net pay separately.
How Is Indian Salary Structure Defined?
Salary in India is structured around Cost-to-Company (CTC). This includes every component the employer pays statutory contributions, allowances, and benefits combined.
Basic Salary (50% of CTC Minimum)
Basic wage forms the foundation for EPF, gratuity, statutory bonus, and overtime calculations.
Under the Code on Wages 2019, basic salary plus dearness allowance must equal at least 50% of total CTC.
House Rent Allowance (HRA)
Partially tax-exempt under Section 10(13A) when the employee rents accommodation.
The exemption is limited to the least of actual HRA received, 50% of basic salary in metros (40% elsewhere), or rent paid minus 10% of basic.
Dearness Allowance (DA)
A cost-of-living adjustment, fully taxable. It is counted toward EPF and gratuity calculations.
DA is common in public sector roles and some private sector positions.
Special Allowances and Reimbursements
Used to balance the rest of CTC after statutory allocations are applied.
Reimbursements for travel, fuel, meals, and medical expenses can be tax-free. This requires documented proof of actual expenditure.
Statutory Bonus and Performance Incentives
Statutory bonus under the Payment of Bonus Act is required for eligible employees earning up to INR 21,000 monthly.
Performance incentives are typically paid quarterly or annually. They are fully taxable as income.
What Are the Mandatory Statutory Contributions and Deductions?
Five statutory contributions sit at the core of Indian payroll. Each has its own calculation base, remittance schedule, and penalty regime.
1. Employees' Provident Fund (EPF)
The employer contributes 12% of basic salary plus DA. Of this, 3.67% goes to the EPF account and 8.33% to the Employees' Pension Scheme.
The wage ceiling for EPS is INR 15,000 monthly. The employee matches at 12%.
2. Employees' State Insurance (ESI)
Applicable to employees earning up to INR 21,000 per month.
The employer contributes 3.25% of gross salary. The employee contributes 0.75%. Both are remitted monthly through the ESIC portal.
3. Professional Tax (PT)
A state-level deduction, typically ranging from INR 200 to INR 2,500 annually.
Karnataka, Maharashtra, Tamil Nadu, and West Bengal levy professional tax. Several states do not impose it.
4. Labour Welfare Fund (LWF)
Applicable in select states like Maharashtra, Tamil Nadu, and Karnataka.
Contribution frequency and amount vary by state. Some collect annually, others semi-annually or monthly.
5. Tax Deducted at Source (TDS)
Employers must withhold income tax monthly based on projected annual income and the employee's chosen tax regime.
TDS is deposited with the Income Tax Department by the 7th of the following month.
Contribution Quick-Reference Table
How Are Income Tax Slabs and TDS Calculated?
Employers calculate TDS based on the employee's projected annual income, applicable regime, and declared investments submitted at the start of the financial year.
The new tax regime is now the default. The old regime is opt-in and allows exemptions like HRA under Section 10(13A) and deductions under Section 80C.
Tax Slab Table — New Regime (2026)
Surcharge applies for incomes above INR 50 lakh (10%), INR 1 crore (15%), and INR 2 crore (25%).
A 4% Health and Education Cess is levied on total tax liability.
What Are the Rules for Statutory Bonus, Gratuity, and Mandatory Benefits?
1. Statutory Bonus
Payable under the Payment of Bonus Act, 1965 to eligible employees earning up to INR 21,000 per month.
The minimum is 8.33% of annual wages. Eligibility requires at least 30 working days of service during the accounting year.
2. Gratuity
Payable on resignation, retirement, or death after five years of continuous service.
The formula is 15 days' wages per completed year. Wages are calculated as basic salary plus DA divided by 26.
Organizations should provision gratuity at 4.81% of basic salary monthly. Tax exemption applies up to INR 20 lakh under the Payment of Gratuity Act.
3. Maternity Benefit
Eligible women employees receive 26 weeks of paid leave for the first two children. Twelve weeks are provided thereafter.
Companies with 50 or more employees must provide or arrange crèche facilities within a prescribed distance.
4. Earned, Sick, and Casual Leave
Minimum 15 days of earned leave after 240 days of service under the Factories Act.
State-specific Shops and Establishments Acts set sick leave (7–12 days) and casual leave (6–12 days) rules separately.
5. Leave Encashment on Exit
Unused earned leave must be encashed as part of full-and-final settlement.
Tax exemption applies up to INR 25 lakh on a lifetime basis for non-government employees.
What Are the Compliance Filing and Payslip Requirements?
Each statutory contribution requires its own monthly or quarterly return. Filing obligations remain with the employer, regardless of whether a third-party payroll provider processes salaries.
1. TDS Filings
Monthly TDS deposit is due by the 7th of the following month.
Form 24Q, the quarterly return summarizing deductions for all employees, is filed online with the Income Tax Department.
2. Form 16 (Annual TDS Certificate)
Issued to each employee by June 15 following the close of the financial year.
Employees use Form 16 to file personal income tax returns and verify TDS accuracy.
3. EPFO and ESIC Returns
Monthly Electronic Challan-cum-Return (ECR) filings are required for EPF.
ESI contributions are filed monthly as well. Both require employee-wise reporting through respective government portals.
4. Professional Tax and LWF Returns
Filing schedules vary by state monthly, quarterly, or annually depending on jurisdiction.
Karnataka, Maharashtra, and West Bengal each operate distinct online portals with separate credentials and formats.
5. Payslip Requirements
Every employee must receive an itemized payslip showing earnings, statutory deductions, voluntary deductions, employer contributions, and net pay.
Digital delivery via email or secure portal is acceptable under the Wage Code.
What Are the Rules for Termination, Notice, and Final Settlement?
Termination payouts in India must be processed cleanly. Errors in final settlement commonly trigger labour disputes. The new labor codes compress timelines significantly.
Notice Periods
Minimum 30 days' notice under the Industrial Disputes Act for standard termination.
IT and tech contracts commonly extend this to 60–90 days for mid-to-senior level roles.
Retrenchment Compensation
Workers terminated due to redundancy receive 15 days' average pay per completed year of continuous service, plus one month's notice or pay in lieu.
Employers must also contribute to a re-skilling fund equal to 15 days' last-drawn wages.
Final Settlement Components
Full-and-final settlement includes outstanding salary, leave encashment, gratuity (if eligible), statutory bonus, and any other contractual dues.
This must be processed within two working days of the separation date.
Form 16 and Documentation Release
The employer must issue Form 16, EPF and ESI documentation, experience certificate, and relieving letter as part of clean offboarding.
Delays in documentation create employee disputes and potential litigation risk.
What Are the Penalties for Payroll Non-Compliance?
Non-compliance penalties stack across authorities. Even small errors compound quickly when missed contributions accrue interest and trigger independent penalty regimes.
- Late TDS deposit triggers interest at 1.5% per month from the due date, plus prosecution exposure under Section 276B of the Income Tax Act for repeated defaults
- Default EPF contribution attracts interest at 12% per annum on the overdue amount, plus damages up to 25% under Section 14B of the EPF Act
- Payment of Wages Act violations carry fines up to INR 50,000 per offense, plus potential inclusion on the "default employers list" maintained by labour authorities
- Delayed ESI remittance triggers automatic interest accrual and prosecution exposure under the ESI Act, with penalties assessed independently of other statutory defaults
- Professional tax delays generate state-level penalties, often structured as 10% of unpaid tax plus monthly interest that accumulates regardless of the amount owed
To avoid payroll errors and cumulative exposure, organizations should establish proactive compliance calendars covering all five statutory regimes.
How Does Gloroots Run Payroll in India?
Gloroots runs Indian payroll under an owned local entity. You direct the work. Gloroots handles every statutory contribution, filing, and remittance on schedule.
Salary structures are configured to meet the 50% basic-wage rule. Allowances are optimized for both employer cost efficiency and employee take-home pay.
EPF, ESI, professional tax, LWF, and TDS are deducted, remitted, and filed monthly. Form 16, Form 24Q, and all statutory returns are managed in-house with audit-ready documentation maintained by country.
Pricing is fixed per employee, per month. No percentage-of-salary fees. No surprise compliance add-ons.
Best fit for foreign employers running Indian payroll without a registered entity. Also suited for those auditing an existing global payroll compliance setup.
Talk to Gloroots about running compliant payroll for your Indian team predictable, country-specific pricing, owned entity, and centralized oversight from day one.
Frequently Asked Questions About Indian Payroll
How often must I pay employees in India?
Monthly payroll is standard. Companies with fewer than 1,000 employees must pay by the 7th of the following month.
Larger companies have until the 10th. Bi-weekly cycles are used in some IT and outsourcing firms but remain less common across Indian industries.
What percentage of CTC must be basic salary?
At least 50% under the Code on Wages 2019. This directly affects EPF, gratuity, and statutory bonus calculations.
Lower basic-wage structures common in older salary designs are no longer compliant. Companies have restructured CTC across the board to meet the threshold since November 2025.
Is gratuity mandatory for all Indian employees?
Yes, after five years of continuous service. Companies with 10 or more employees fall under the Payment of Gratuity Act.
Gratuity is calculated as 15 days' wages per completed year of service. Tax exemption applies up to INR 20 lakh on a lifetime aggregate basis.
Can a foreign company run payroll in India without a local entity?
Yes, through an employer of record like Gloroots. The EOR is the legal employer and handles all payroll filings and statutory obligations.
This removes the 2–3 month entity setup timeline and ongoing compliance overhead. Employees are paid in INR under fully compliant contracts managed locally.
What happens if I miss a TDS or EPF deposit deadline?
Late TDS triggers interest at 1.5% per month plus prosecution exposure. Late EPF attracts 12% interest plus damages up to 25% of the outstanding amount.
Repeated defaults can land your company on the EPFO "default employers list." This affects future tender eligibility, government contracts, and organizational reputation.
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