Payroll in India

Updated on Saturday 19th March 2022

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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. 
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.

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. 

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