Payroll taxes in India that are of key importance to employers include income tax (TDS), Employees' Provident Fund (EPF), and professional tax. Learn more about the processes for setting up payroll, calculating taxes, submitting payments compliantly, and adhering to due dates in India.
Capital City
New Delhi
Currency
Indian Rupee
(
₹
)
Timezone
IST
(
GMT +5:30
)
Payroll
Monthly
Employment Cost
16.75%
Understanding payroll and employment taxes in India is essential for both small business owners and larger enterprises. Employers must navigate various taxes, including income tax withholding, social security contributions, and local levies. Managing these taxes can be challenging, with risks such as penalties and strained employee relations arising from non-compliance. This article aims to help readers grasp the key aspects of payroll taxes in India, covering calculations, deadlines, and filing procedures. It's important to note that tax laws and requirements may vary based on factors like location, income, and business size.
1 April - 31 March is the 12-month accounting period that businesses in India use for financial and tax reporting purposes.
The payroll cycle in India is usually monthly, with employees being paid on or after the 28th of each month.
The minimum wage for employees in India is typically 22.25 INR per hour, amounting to ~3,560 INR per month for a typical 40 hour work week.
Low-income workers in India are required to receive 13th-month salary, calculated as a percentage of their annual income and paid within eight months after the financial year concludes.
In India, employers must adhere to various payroll taxes, each governed by specific regulations.
Employers are required to deduct Tax Deducted at Source (TDS) from employees' salaries based on applicable income tax slabs. This ensures timely tax collection and compliance with the Income Tax Act. Employers must deposit TDS to the government by the 7th of the following month. Failure to comply can result in penalties and interest charges.
The EPF is a mandatory retirement savings scheme for employees earning up to ₹15,000 per month. Both employer and employee contribute 12% of the employee's basic salary and dearness allowance to the fund. Employers must remit EPF contributions by the 15th of each month. Late payments attract penalties and damages.
Levied by certain state governments, professional tax is a nominal tax on employment. The rates and due dates vary by state, with a maximum annual limit of ₹2,500. Employers are responsible for deducting and remitting this tax as per the respective state's regulations. Non-compliance can lead to fines and legal consequences.
Setting up payroll correctly is crucial to ensure compliance with legal requirements and maintain employee trust. Employers should familiarize themselves with the various components of payroll, including salary structure, allowances, and statutory deductions. Implementing a reliable payroll system or software can streamline the process and reduce errors.
Consider an employee with a basic salary of ₹50,000 per month.
Employers can submit payroll taxes through various methods:
Understanding the tax obligations for both employers and employees is crucial when operating in India's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in India.
Employer payroll contributions are generally estimated at an additional 16.75% on top of the employee salary in India.
In India , the typical estimation for employee payroll contributions cost is around 18.08%.
In India, individual income tax is determined using progressive rates, ranging from 5% to 30%. There are two regimes available: the New Personal Tax Regime (NPTR) outlined below, and the old regime, allowing taxpayers to opt for either of the two.
In India, the retirement age - set between 58 and 60 years - is regulated by the Employees Provident Fund Act of 1952 and the Industrial Employment Act of 1946. Both employer and employee contribute 12% to the Employees Provident Fund Scheme (EPFS) and other funds, covering pension and deposit-linked insurance for the employee.
Global employers operating in India often encounter unique payroll challenges that can affect compliance and efficiency, like navigating evolving tax laws and managing employee data. With a need for real-time accuracy, modern organizations must develop strategies to overcome these challenges effectively. Below, we explore some of the most common payroll hurdles and provide actionable solutions to streamline payroll processes in India.
Maintaining accurate global payroll reports is often challenging due to currency exchange complexities, data integration issues, and the need to keep employee information up-to-date – including tax information, hours worked, leave balances, and any changes in salary or job status. Generating accurate reports is easy with a comprehensive payroll automation tool that consolidates fragmented data sources, and can keep track of employee payments and deductions.
In India, tax laws and compliance regulations can change frequently, presenting a significant challenge for global employers. Monitoring updates to federal, state, and local tax codes is crucial to avoid non-compliance and costly penalties, but requires significant time and resources. Partnering with local experts or a reputable global HR platform is an effective way to maintain compliance. These services can help employers stay compliant with evolving regulations while freeing up time for more strategic work.
Managing payroll across multiple vendors often leads to fragmented data and inefficiencies, making it difficult to consolidate analytics. These challenges can hinder decision-making, especially when trying to gain a clear view of workforce costs and trends. To address this, organizations can invest in a centralized payroll management system that unifies data from multiple vendors. A consolidated platform simplifies payroll tracking, ensures data accuracy, and provides actionable insights into payroll expenditures.
Global companies are prone to using multiple HR or payroll systems across regions, which can easily lead to fragmented payroll data, increasing the risk of delays and errors in employee compensation. To combat this, seamless integration between payroll and other systems is critical.
Payroll management systems that connect with existing HR and financial platforms can help streamline workflows by reducing manual inputs and ensuring that all departments operate with up-to-date, accurate information. In turn, this helps guarantee on-time, accurate payroll, boosting employee satisfaction.
A global payroll management platform is a software solution designed to streamline and automate the payroll processes for organizations with employees across multiple countries. It helps ensure accurate and timely payment while maintaining compliance with legal and regulatory requirements in India.
Key functions of a payroll management platform can include:
Expanding globally is an exciting milestone for any company, but it comes coupled with complex payroll challenges. It doesn’t have to be complicated. At Playroll, our easy-to-implement global payroll management software combines automation with hands-on support to make global payroll truly simple. Here's how Playroll helps:
Disclaimer
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Playroll does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect Playroll’s product delivery in any given jurisdiction. Playroll makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.
ABOUT THE AUTHOR
Jesse Weisz
Jesse is an experienced R&D Analyst at Playroll, a leading Employer of Record (EOR) provider. With a strong background in data analysis and market research, Jesse specializes in identifying emerging trends and driving innovation in global HR solutions. She is an all-rounder, critical thinker and success-seeker (often inextricably linked to being a late-night tea drinker).
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Payroll taxes are calculated by determining the gross salary and then applying the relevant statutory deductions, such as TDS, EPF, and professional tax, based on current rates and regulations.
Employers can manage payroll in-house using software solutions or outsource to professional payroll service providers to ensure compliance and efficiency.
Key elements include basic salary, allowances, bonuses, statutory deductions (like TDS, EPF, ESI), and net take-home pay.
Payroll tax amounts vary based on the employee's income, applicable tax slabs, and state-specific levies like professional tax.
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