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Payroll in India

Payroll in India

Payroll is the procedure related to the payment of the company’s employees. Investors starting a company in India will need to integrate payroll services within their company as prescribed by the local legislation, or they may outsource such services to a business that is specialized in offering a wide range of payroll activities. 

As a general rule, most of the companies (especially large companies) outsource the payroll to specialized businesses, as they can offer full services, which may also include the usage of modern means of communication (such as smartphones or tablets) for the management of payroll procedures. Our team of specialists in company formation in India can provide in-depth assistance on the main payroll activities applicable to a local business. If you are interested in payroll in India, our local specialists are at your disposal with complete information.

Payroll activities in India  

Payroll is a complex procedure that takes into consideration numerous aspects concerning the taxation of an employee hired in an Indian company, but it also refers to allowances, medical leave, meal coupons and other aspects associated with the rights granted to a local employee. 

The taxation of an employee is also completed depending on his or her age and our team of consultants in company formation in India can advise on the taxation system applicable in this case. 

 Quick Facts  
  Employee/employer registration services (Yes/No)  Yes, we are at the service of companies with employee/employer registration services

 Payroll setup services (Yes/No)

 Yes, our accountants in India can set up the payroll for companies

  Employee records setup and maintenance services (Yes/No)

Yes, we can set up, keep and update employees’ records 

  Payslip generation services (YES/NO)  Yes, this is one of our most important payroll services in India
 Employee remuneration computation

Yes, we can calculate employee salaries 

  Mandatory contributions for employees

Employees must contribute to the Provident Fund Scheme which also contains the pension fund 

  Employment contributions for employers

 Employers are required to pay the same contributions as workers

 Payroll reporting requirements 

 Monthly payments and reports must be generated in India

  Social security contribution for employees

 12% to the Provident Fund

  Social security contribution for employers  12% to the Provident Fund , 8.33% of the 12% must be directed to the pension fund
  Employment statutory filing requirements support (YES/NO)

Yes, we can draft and file payroll reports 

  Special requirements applicable to foreign employees (YES/NO)

 Foreign employees must live and work in India for 182 days in a calendar year to be deemed tax residents here and pay income and payroll taxes on their worldwide income

  Special requirements for Indian citizens working abroad (YES/NO)

Indian citizens working abroad can benefit from double tax treaties signed by India 

 Assistance in drafting labor contracts (YES/NO) 

Yes, we also offer support in creating labor agreements 

 Other services (if available)  Accounting, bookkeeping, and audit services in India.

One of the activities that are performed by in this situation refers to the allowances granted to the employee. It is important to know that India offers numerous allowances that are exempted from taxation, such as:

  • house rent;
  • transportation;
  • medical leave;
  • travel leave;
  • education. 

Payroll in India is an important part of the accounting department of a company, and you can rely on us for support in such matters. We can also provide assistance in other employment matters, among which human resources. 

The most important payroll services available in India

When it comes to HR and payroll services in India, here are the most requested:

  • preparation and registration of employment contracts for Indian and foreign citizens
  • the preparation of payslips and their registration in the accounting/HR software of the company;
  •  the submission of monthly and annual tax applications of employees with the Indian Tax Department;
  • preparation and registration of annual leave documents;
  • payment of income tax and social security insurances.

Payroll in India is an important task that can be completed by the accounting department in a company or by using externalized HR services. You can rely on our accountants for various tax-related solutions.

Taxes paid as part of payroll in India

There are several taxes that need to be considered as part of the payroll in India. These are:

  • the personal income tax;
  • social security premiums.

In order to be able to set up the payroll, a company must be registered with various authorities. Especially for new companies, the following steps need to be completed:

  1. obtain the tax account number (TAN);
  2. obtain a permanent account number (PAN) which will be used to file tax returns;
  3. register for the Social Security Scheme by obtaining a PF number;
  4. obtaining employee insurance (ESI number) for each worker.

Considering India’s population of more than 1.2 billion inhabitants and an employment rate of 43.1% employment rate at the level of March 2021, payroll is requested by many companies here.

If you are interested in solutions related to payroll in India, feel free to address our local consultants. We can also provide tailored support in employment matters, including when hiring foreign citizens.
We are also at the service of investors who are interested in company formation in India.

Creating the payroll for an Indian company

Payroll must be set up with the first employee in a business. The process is in most cases handled by the company’s accounting department, however, using externalized services has increased considerably in the past few years. For this purpose, many accounting firms offer personalized payroll in India. For example, simplified services dedicated to small enterprises or more complex operations that can be completed on behalf of large employers with thousands of workers.

The following are some of the documents that must be processed as part of the payroll:

  • employee recorder;
  • paychecks;
  • payment forms;
  • salary documents.

Payroll and human resources departments can be outsourced to our accountants in India, who will ensure that all services are delivered on time, allowing you and your employees to focus on your work.

Indian employees can work under various types of labor agreements, the most common of which are part-time and full-time employment contracts, according to the Employment Law. Based on the salaries they earn, they need to pay the income tax. It is worth noting that there is no minimum wage established by the government in India.

Forms to file under the payroll in India

The payroll for an Indian company implies filing various forms, among which the most important ones are:

  • Form 24Q – the return for tax withheld at source from salary payments;
  • Form 12B, if an employee joins the company in the middle of the year;
  • for persons who are 60 years of age or older to file an ITR valid for one financial year, Form 15H must be filed;
  • Form 15G is for filing ITRs that are valid for one financial year by everyone else;
  • Form 16B attests that tax has been withheld at source from revenue derived from the sale of moveable property (buildings or portions of them), other than agricultural land, and that the property buyer has deposited with the revenue Tax Department;
  • Form 10C must be completed when submitting a claim for benefits under the Employee Pension Scheme (EPS).

Please mind that these are only a few of the forms that must be submitted when handling Indian payroll. Should you need support in such endeavors, you are welcome to rely on our specialized accountants.

Types of payroll solutions in India

There are several ways through which payroll can be handled in India, and the most common are:

  1. in-house payroll which works well for small enterprises with a limited number of employees and regular work hours;
  2. payroll managed by Indian bookkeepers/CPAs: when a company considers that the payroll requirements exceed the accounting team’s capacity, it frequently engages a bookkeeper or a CPA to handle this part;
  3. outsourced payroll which implies the appointment of an agency whose sole function is to process payroll is a necessary step in outsourcing payroll management for a business;
  4. software-managed payroll – in the world of payroll administration, this kind of service is rather new. But because of its cloud-based architecture, automation, and constant access to the business’s data, it is becoming more popular not only in India, but also in other countries.

We are also at your service with outsourced payroll solutions for any type of enterprise in India.

Employment regulations in India

Payroll is an important part in the employment process in India, which is why it is often connected to the Labor Code. A company must respect various rules when hiring, having, and terminating work relations with their employees.

Here are the main categories of employees one can find in India:

  • workers;
  • non-workers which refer to freelancers and independent contractors.

According to the law, a workman is an employee who is hired to perform any manual, skilled or unskilled, technical, operational, clerical, or general supervision work for hire or reward.

Self-employed or independent contractors in India are people who usually work for employers on a “consultancy” basis. An independent contractor’s employment will be governed by the individual contract because they are not protected by Indian labor regulations. As a general rule, an employer shouldn’t abuse an independent contractor agreement to deny the person the rights or benefits that would be accessible to a permanent employee. From a payroll point of view, self-employed persons must pay their own contributions.

Register an employee for payroll in India  

In order to benefit from payroll services in India, the company has to register any new employee, by providing a set of information regarding payroll aspects, as follows: 

  • personal data of the employee (name, address, and others);
  • tax information;
  • salary information and job title;
  • number of family members;
  • health insurance information;
  • premiums and allowances; 
  • type of employment contract;
  • total number of working hours concluded in a month. 

Hiring foreign employees and their payroll in India

For the purposes of income and payroll taxation in India, a foreign national is considered to be a resident of India if they spend at least 182 days there during the applicable tax year.

According to the Income Tax Act, if a person is resident or ordinarily resident (meaning a resident in the current fiscal year, a resident in two of the prior ten years, and present in India for at least 730 days during the previous seven years), they are required to pay tax on all of their worldwide income. In all other circumstances, the person is obligated to pay the applicable rate of income tax on their income from India for the pertinent assessment year.

Taxation of employees in India

Here are the main aspects to consider about taxation of employment in India:

  • the personal income tax is levied at progressive rates ranging from 0% to 30%;
  • employees must also contribute with 12% of their wages to the Provident Fund Scheme;
  • another 12% must be paid by the employer to the same fund;
  • out of the employer’s contribution, 8.33% will be directed to the pension fund of each employee.

Businessmen who want to register a company in India are required under the local legislation to provide all the above-mentioned aspects. They also need to submit specific forms with the local authorities and our team of representatives in company registration in India can advise businessmen on other compulsory steps regarding payroll activities