101 Guide to Employing and Officing in India
101 Guide to Employing and Officing in India

India’s technology talent is just as diverse as its culture. With around 75% of global digital talent present in the country, the Indian subcontinent remains the topmost offshoring destination for technology companies around the world. While finding great technology talent is easy, employing them in India can be slightly more complex.

From developer salaries to labor law in India, Skuad 101 guide will help present a clear picture on how to establish a subsidiary office space and set up a remote technology team.

Economic Powerhouse

Mumbai

Local Currency

Indian Rupee (₹) 1 INR = 0.013 USD

Local Currency
GDP

6.8% growth rate (2018)

Time Zone

Locally, India follows IST (Indian Standard Time). This means India is in the GMT+ 5:30 time zone. Further, IST is not adjusted for daylight savings therefore it remains the same throughout the year.

Spoken Language

Hindi, English

Employment Type

Full-time, Contract & Freelance

Technology Talent in India

India is a global hotspot for tech talent with over 7000 startups employing talent in India.  Tech giants like Microsoft, IBM, and Google attract talent from top universities such as Indian Institute of Technology (IIT), National Institute of Technology (NIT), Delhi Technological University (DTU), Birla Institute of Technology & Science (BITS) etc. The top technology roles in India include Android Developers, Full Stack Developers, Data Scientists & Machine Learning Developers and talent for this is majorly found and deployed in Delhi, Mumbai, Bangalore, Pune, Hyderabad and Chennai. There has been a continuous rise in tech jobs and in 2019, Bangalore contributed $45 Billion of IT exports making it one of the largest IT hubs in the world.

If you are a technology professional looking to be hired, connect with Skuad.

Employment Laws

Entitlements

Minimum Wage

The minimum median hourly wage for a full-time & contract technology professional in India is ₹300-700 ($ 4-8) and for a freelancer is ₹700-1000 ($ 10-14). These hourly rates can fluctuate depending on the experience and technology profile.

Working Hours

India has a standard working hours of 45 hours per week for a full time employee. Since a freelancer is not committed to an organisation, no such clause is applicable to them.

Overtime

There are no payments made to full-time & contract technology employees for each hour exceeded beyond the defined working hours. 

Leaves

Paid Time Off

Indian employment law mandates a minimum of 15 paid leaves annually to full-time employees. Leave policy for employees in India consists of 20-30 paid leaves each year that includes public holidays, sick leaves & casual leaves. In the case of contract workers and freelancers, leaves follow the contract between the two parties.

Maternity Leave

Human resource laws in India mandate paid time off of 26 weeks for full-time female employees with fewer than 2 children. If the employee has more than two children, she is entitled to 12 weeks leave. Adopting or commissioning mothers are entitled to 12 weeks leave. Female contract workers in India are eligible for maternity leave, however the duration depends on the nature of contract between two parties.

Pregnancy Disability Leave

Female full-time employees who have unfortunately suffered from some pregnancy-related mis-happenings are entitled to 2-6 weeks of special leaves. There is no such official law for contract and freelance workers.

Paternity Leave

As per India’s employment laws, there is no provision for paternity leave in India. However, some employers voluntarily grant 1 week of paternity leave to full-time employees.

Sabbatical

Some employers in India do provide unpaid sabbatical leave but that is purely based on the employment agreement and terms & conditions agreed upon by both the parties.

Probation

Usually, organisations have a probationary period of 3 to 6 months for all full-time or contract employees in India. If certain terms of service change, the employees are notified.

Leave policy in India

Payroll, Taxes

Frequency

Payroll for full-time/contract employees is run once every month and is paid anywhere between the last two days of the month and the first week of the next month. For freelancers, payments are either processed on a half-and-half basis or post completion of the project. 

Payslips

Employers are required to provide monthly payslips to each employee for each payment & deductions. In the case of freelancers, they generate invoices monthly, for which payments are made.

Income Tax

In India, the legal status is different for full-time, contract & freelance employees. For full-time, employee tax in India is charged under ‘Income from Salaries’. Hence, net taxable income after standard deduction is subjected to a progressive tax bracket of 5% to 30% on income above ₹2,50,000. Remunerations are disclosed under ‘Income from Business or Profession’ for contractors & freelancers with a flat deduction of 10%.

NOTE: Tax year in India for most businesses runs from 1st April to 31st March the following year.

Income Tax Returns (ITR)

Along with deducting taxes for each employee, an employer needs to facilitate the process of ITR. Each full-time employee should be provided with a Form 16 and each contract employee should be provided a Form 16A to file ITR. This form contains a summary of the taxes that are deducted by the employer and deposited against the Permanent Account Number (PAN) with the government. It also contains a summary of the total amount paid by the employer to the employee for that financial year.

For more information, refer to source: Clear Tax, Chartered Club

Taxes

Retirals

Retirement Age

The generally accepted retirement age is 60 years. Though, private employees in India are known to work for longer, retirement age can be extended or shortened as per a company’s discretion.

Employee Provident Fund (EPF)

Companies are expected to register themselves with the EPF Organization within one month of attaining a strength of 20 or more full-time and/or contract employees. Employment rules in India make it mandatory for employers to make a contribution of 12% of an employee’s salary. No employer is liable to contribute towards a freelancer’s EPF. 

Gratuity

Every employer is entitled to pay gratuity to a full-time employee who has continuously rendered their service for at least 5 years. It serves as a social security to employees after retirement and entitles them to a tax-free gratuity of up to ₹20 lakhs. Fixed-term contracts are entitled for gratuity if dictated by their agreement. Freelancers are not.

Bouquet of Benefits

Although not mandatory, employee benefits for full-time and contract employees in Indian tech companies are as follows:

Health Insurance & Life Insurance

Most technology companies in India offer health insurance or life insurance or both to their full-time employees. The nature of coverage and amount would depend on the employer policies and the nature of the contract between both the employee and the employer.

Wellness Initiative

Some employers contribute to employee welfare in India. Activities in this area may include provision of housing facilities, provision of loans, in-office counsellors for mental well being, group yoga/zumba classes etc.

Employees doing yoga
Bonus

Employers in India ensure that they incentivise every employee with a bonus for going the proverbial extra mile. The bonus should be paid at a minimum rate of 8.33% and the parameter differs from one employer to another.

Remote Working Allowance

Rights of private sector employees in India do not instruct a remote working allowance as the concept is fairly new. Most private firms, however, have started providing logistical compensation equivalent to rent, wifi, electricity, office furniture, stationary, etc., costs which otherwise would have been a part of operational expenses.

Termination

Employee termination policy in India dictates a 30-90 days notice period to both employee & employer. The notice period can be waived off by either paying compensation in lieu or by compromising on the salaries & benefits as applicable. 

At termination, an employer must provide an employee with:

• A copy of approved service letter

• Forms and returns that include Provident Fund, salary certificates & any other legal document applicable otherwise

What it takes to setup an office in India

The key criteria for establishing a company in India involves at least 2 directors (1 director must be Indian citizen and resident) with a minimum of 2 shareholders. 

Business Types

Incorporated Entity

The most commonly obtained license is the Company or LLP Registration. A business with an annual turnover of over 20 Lakhs is required to register as an LLP or a company that is regulated by the Ministry of Corporate Affairs. Entrepreneurs can enjoy limited liability as a business acquires a separate entity.

Liaison Office

Companies with net worth of at least $50,000 can set up a Liaison office to conduct market surveys and feasibility studiesA liaison office acts as a communication channel between a head office and the Indian entity but does not indulge in any commercial activity. Initially these offices can be set up for 3 years and only receive funding from its parent company. To open a liaison office, a Form FNC needs to be submitted to an Authorised Dealer Category-I bank along with statutory documents.

Branch Office

A company with a net worth of at least $100,000 can set up a branch office to conduct full fledged business (except manufacturing). The Parent company also needs to show that it has made a profit in the last five years in the home country. To open a branch office, a Form FNC duly signed by AR along with statutory documents is required. It is considered a foreign company and taxed at 40%. 

Joint Venture & Wholly Owned Subsidiaries (FDI)

A foreign company can set up its business in India by getting into an agreement with two or more parties to share resources, risks, and ownership (joint ventures) or by controlling ownership in a business through 100% FDI (wholly owned subsidiary). FDI is not permitted for businesses like real estate, lottery, gambling, and atomic energy. FDI can be done via the automatic route or government route where prior government approval is required.  

Co-working Setup

Co-working spaces in the IT hubs of India like Bengaluru, Gurgaon & Mumbai start from around $100. Cities like Chandigarh, Ahmedabad, Chennai, etc are some affordable alternatives.

Business Taxes in India

Value Added Tax (VAT)

VAT is a state level tax applicable for items not taxable under GST Act such as petrol, diesel and alcohol. The standard rate is from 1% to 15% and varies depending on the type of goods sold. Companies with annual turnover exceeding ₹5 lakhs must register for VAT. A VAT number consisting of 11 digits is allotted to a trader to enable them to file VAT payments. Return filing dates are the 10th, 15th and 20th of the succeeding month for the preceding month.

Goods and Services Tax (GST)

GST rates range from 5% to 28% depending on products & services. As per the GST law in India, all entrepreneurs are required to obtain GST registration within 30 days of starting a business. A 15 digit GISTIN is allotted to every registered person/ business liable to deduct TDS or collect TCS. Returns are to be filed monthly on 20th of the following month. 

Corporate Income Tax (CIT)

Domestic companies are taxed on universal income and foreign companies are taxed on the following income rates within India:

Corporate Tax Rates
* Includes 10% surcharge (for income >1 crore) and 4% health & education cess

The ITR is supposed to be filed by September 30, every year. Forms mandated by the Indian government to file the same include ITR 6 (all except companies claiming deduction under Section 11) and ITR 7 (all except companies registered under Section 8 of companies act, 2013).

Employment Visas for India

An Indian business visa with multiple entries can be granted for up to 5 years, as per the requirement. A Visa is mandatory for foreign nationals to explore and set up business ventures in India, partnering in an Indian business, recruiting people from India, and so on. 

For more information, refer to source: Ministry of Home Affairs

Still confused about where and how to start?

Think it’s too much hassle to create a local subsidiary? Save costs and time by onboarding remote workers! Let Skuad help you. We’ll assess our pre vetted technology pool to match you with remote technology professionals. Not only that, but we will also take care of everything from onboarding to payroll, benefits, taxes, and local compliances. Scale up your business by connecting to us!

 

Disclaimer: The information provided in this blog is neither exhaustive nor absolute. This article does not substitute legal obligations and procedures. To start a business in any country, you should seek professional advice. For more details on anything, connect with Skuad experts.

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