New in 2026: India's four Labour Codes (Wages, Industrial Relations, Social Security, OSH) came into full effect in November 2025, replacing 29 legacy labour laws. The changes affect how "wages" are defined for statutory calculations, gratuity eligibility, and termination procedures. All companies with India employees must comply.
Overview: India Payroll Statutory Contributions
Every employee on an Indian payroll generates a set of mandatory statutory contributions — paid by both employer and employee. Getting these wrong results in penalties, interest charges, and personal liability for directors. Here is the complete picture:
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Under the new regime, the Section 87A rebate of up to ₹60,000 makes income up to ₹12,00,000 effectively tax-free. For salaried employees, the ₹75,000 standard deduction means salary up to ₹12,75,000 is effectively tax-free.
India Salary Structure — How It Works
Indian salaries are structured very differently from Western payrolls. The total package — called CTC (Cost to Company) — includes both the employee's take-home and the employer's statutory contributions. Understanding this is critical to avoid over- or under-offering.
Typical India Salary Structure
| Component | Typical % of CTC | Notes |
|---|---|---|
| Basic Salary | 40–50% | Base for PF, gratuity calculations |
| HRA (House Rent Allowance) | 40–50% of basic | Tax-exempt up to limits for renting employees |
| Special Allowance | Balance of CTC | Fully taxable, flexible component |
| Employer PF Contribution | 12% of basic | Part of CTC; employer's share |
| Gratuity Provision | 4.81% of basic | Part of CTC; paid on exit after 5 yrs |
| Medical / Insurance | Varies | Group health insurance premium |
| Performance Bonus | 5–20% | Variable; typically annual |
Important: When a candidate tells you their "salary expectation" in India, they typically mean CTC — the total cost including all components and employer contributions. Always clarify whether a number is CTC or take-home (in-hand) to avoid misunderstandings at offer stage.
The New Labour Codes — What Changed in 2026
India consolidated 29 labour laws into 4 codes, which came into full effect in November 2025. The key changes relevant to payroll and HR compliance:
Code on Wages
The definition of "wages" is now standardised across all labour laws. Wages must include at least 50% of total remuneration as basic wages — meaning allowances cannot exceed 50% of CTC. This directly impacts PF and gratuity calculations since both are based on basic wages.
Code on Social Security
Gratuity eligibility has been extended. Under the new code, the 5-year continuous service requirement may be reduced to 1 year for fixed-term contract employees. Maternity benefits have been enhanced and now apply to establishments with 10 or more employees (down from 30).
Code on Industrial Relations
The threshold for requiring government approval before mass layoffs has been raised from 100 to 300 employees. For most foreign companies building small India teams, this is less relevant — but it does affect EOR providers managing larger workforces.
Code on OSH (Occupational Safety, Health and Working Conditions)
Working hours, overtime rules, and leave entitlements are now standardised. Maximum working hours remain 48/week. Employees are now entitled to one paid leave day for every 20 days worked (down from 1 in 30 under the old Factories Act for manufacturing).
Payroll Compliance Calendar — Key Deadlines
| Deadline | Compliance Task |
|---|---|
| 7th of every month | TDS deposit (salary deductions from previous month) |
| 15th of every month | EPF contribution deposit (previous month) |
| 15th of every month | ESI contribution deposit (previous month) |
| Quarterly (Jul, Oct, Jan, May) | TDS return filing — Form 24Q |
| 31st May annually | EPF annual return filing |
| 31st May annually | Form 16 issued to employees |
| 30th November annually | Professional Tax annual return (state-specific) |
Why Foreign Companies Use EOR for India Payroll
Managing India payroll compliance requires registrations with EPFO, ESIC, Income Tax Department, and multiple state authorities — plus monthly filings, quarterly returns, and annual reconciliations. For a foreign company with 2–20 employees in India, the overhead of managing this directly is prohibitive.
An Employer of Record (EOR) handles all of this as part of the service. The EOR employs your Indian staff, runs a fully compliant payroll, handles all statutory filings, and provides employees with their payslips and Form 16. You get a single monthly invoice covering salaries plus compliance costs. No registrations, no filings, no penalties.
XMS EOR starts from ₹8,000 per employee per month, and employees can be onboarded in 5–7 days. Learn about XMS EOR services →
Frequently Asked Questions
Want Fully Compliant India Payroll Without the Overhead?
XMS runs payroll for companies of all sizes in India — EOR from ₹8,000/month per employee, full PF/ESI/TDS compliance, Form 16, and no entity required for foreign companies.