The India Guide: Employment Laws, Taxes, And Benefits

The India Guide Employment Laws, Taxes, And Benefits

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Introduction

Backed by a strong democracy and partnerships, India is one of the world’s fastest-growing economies. As the second-most populous country in the world, India has a vibrant young population of more than 54% below the age of 25. The country’s gross domestic product (GDP) is estimated to be Rs. 207.55 trillion (US $2.66 trillion) and has a foreign exchange reserve of US $634.287 billion as of January 28, 2022, according to the Department of Economic Affairs.

India’s IT sector contributes about 9% to the GDP and accounts for 51% of service imports. India is also the third-largest unicorn hub in the world, accommodating more than 100 unicorn organizations with a valuation of over US $330 billion.

General Information

Currency: Indian Rupee (INR) 1 INR = 0.013 USD

Economic capital: New Delhi

Spoken language: Hindi, English

GDP: US $2.66 trillion (World Bank)

Time zone: GMT (+5:30)

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Entitlements in India

Minimum wage: India does not have a nationally accepted or proscribed minimum wage. However, the state and central governments set the minimum wages at different rates. Based on the Minimum Wages Act, 1948, the rates range from 160 rupees (US $2.40) per day in Bihar to 425 rupees (US $6.35) per day in Delhi.

Working hours: The working hours in India are typically restricted to eight or nine hours per day (maximum of 45 hours per week). A break of 30 to 60 minutes is provided. 

Payroll cycle: The payroll cycle in India is typically monthly, with salaries or wages paid before the 28th of each month.

Pay date: According to the provisions of the Payment of Wages Act, 1936, organizations must pay salaries or wages before the expiry of the 7th day of the last payment date.

Overtime compensation: Any employee who works more than the stipulated working hours is entitled to overtime compensation twice the amount of regular wages.

Leaves

Public holidays: India has an extensive list of government and public holidays. Here is a list of the national public holidays in India.

Date Day Holiday name
January 1 Saturday New Year’s Day
January 13 Thursday Lohri
January 14 Friday Makar Sankranti
January 26 Wednesday Republic Day
March 1 Tuesday Maha Shivratri
March 18 Friday Holi
April 2 Saturday Ugadi
April 10 Sunday Ram Navami
April 14 Thursday Mahavir Jayanti, Ambedkar Jayanti
April 15 Friday Good Friday
May 3 Tuesday Eid-ul-Fitr
May 16 Monday Buddha Purnima
July 10 Sunday Bakri Eid
August 9 Tuesday Muharram
August 11 Thursday Rakshabandhan
August 15 Monday Independence Day
August 19 Friday Jammashtami
August 31 Wednesday Ganesh Chaturthi
September 8 Thursday Onam
October 2 Sunday Gandhi Jayanti
October 5 Wednesday Dussehra
October 9 Sunday Eid-e-Milad
October 24 Monday Diwali
November 8 Tuesday Guru Nanak Jayanti
December 25 Sunday Christmas

Most Indian organizations make provision for ten paid public holiday in addition to paid holiday entitlement.

Annual leave: The Factories Act stipulates that all workers who have worked for an organization for a minimum of 240 days are entitled to an annual leave of 12 working days. During the period of the worker’s annual leave, they are paid their total daily wages.

Casual leave: Casual leaves are restricted to 3 days per month.

Maternity leave: Female employees who have worked in an organization for up to 80 days are entitled to paid maternity leave of 26 weeks.

If a miscarriage or complications regarding the birth of the child, the employee is entitled to an additional leave of six weeks with pay.  

Paternity leave: There is no recognized provision for paternity leave under Indian law. However, organizations in India make provisions for paternity leave as stated in the concerned leave policies. 

Sick leave: Employers in India provide paid sick leave of ten days per year.

Adoption leave: There is no provision for adoption leave  under Indian law. However, employers make provision for this at their discretion.

Childcare leave: Female employees are entitled to Childcare leave or CCL for a maximum period of two years during their entire time in an organization to care for their minor children.

Death leave: Also referred to as Bereavement leave, employees in India are granted seven days of paid time off from work after losing their relative (spouse, parents, children, grandparents, and inlaws).  

Work-related injury leave: There is no provision for work-related injury leave in Indian law. However, employers provide paid time off for injured workers under the condition of sick leave.

Duty leave: There is no provision for Duty leave in the Indian employment laws.

Taxes in India

Tax year: The Indian tax year is from April 1 to March 31.

Personal Income Tax

Residents: Individuals' taxation in India depends on their resident status in the tax year. The slab rates for individual residents for the tax year 2021/2022 are as follows.

Taxable income Tax on column 1 (INR) Tax on excess (%)
Over (column 1) Not over
0 250,000 - 0
250,000 500,000 - 5
500,000 1,000,000 12,500 20
1,000,000 112,500 30

Corporate taxations: Corporate income tax (CIT) rate in India is stated as follows

Income CIT Rate(%)
Turnover does not increase INR 4 billion in FY 2020/21 For other domestic companies Foreign companies
Less than INR 10 million 26.00 31.20 41.60
More than INR 10 million but less than INR 100 million 27.82 33.38 42.43
More than INR 100 million 29.12 34.94 43.68

Source: PwC’s Worldwide Tax Summaries - India

Employee Statutory Benefits

There are six employee statutory benefits in India and they are as follows.

Gratuity payment: The Payment of Gratuity Act, 1972 ensures that employees in India that have worked in an organization for more than five years are eligible and entitled to receive gratuity payment usually the sum of 15 days of the wage for every year of employment.

Employee State Insurance (ESI) Scheme: Employees under the ESI scheme are entitled to free medical treatment for themselves and their close relatives. Organizations in India with 10 or more employees are obligated to extend benefits to their employees earning below INR 21,000 monthly.

Employees Provident Fund (EPF): The EPF offers benefits to employees in an organization with workforce strength of 20 or more employees and is a requirement for any employee that earns INR 15,000 or less in a month.

Minimum wages: There is no uniform minimum wage as the rate differs across the states in India.

Statutory leave: Asides from the three national holidays - Republic Day (January 26), Gandhi Jayanti (October 2), and Independence Day (August 15), The Factories Act ensures organizations provide 12 days of leave for employees that have worked in an organization for more than 240 days.

Maternity benefits: The Maternity Benefit Amendment Act, 2017 ensures that female employees are entitled to benefits such as maternity pay and 26 weeks of maternity leave.

Employee Voluntary Benefits

Bonuses: The minimum statutory bonus an organization must pay to an employee is usually 8.33% of their salary earned during the accounting year.

Retirals

Retirement age: An employee retires at the age of 62 in India.

Pension: The minimum eligibility period for receipt of pension in India is 10 years. The minimum pension amount is INR 9,000 per month and is payable up to the date of death.

Termination

Notice period: The notice period for termination of an employment contract is usually one month in India.

Probation period: The Industrial Employment (Standing Orders) Act, 1946, prescribes a probationary period of 3 months. While this Act does not apply to all organizations in India, it is generally accepted and adhered to by many organizations in India. The general trend in India is to have a probation period of 3 to 6 months.

Severance pay: Under the Industrial Disputes Act, dismissed employees are entitled to severance pay of 15 days’ wages for each year of service in the organization.

Office Setup in India

Types of businesses: Sole proprietorships, limited companies, foreign organizations, offshore organizations, franchises, joint ventures or fully foreign-owned subsidiaries or entities, and branch offices.

Co-working costs: The average monthly cost of co-working spaces in India ranges from INR 7,000 to INR 15,000. However, the cost of a co-working space varies across the different states in the country.

Visa: Two kinds of visas are given to foreign nationals who intend to work in India - Business visas and Employment visas.

  • Business visas are given to foreign nationals primarily for carrying out business operations in India like representing a foreign company in India. However, this kind of visa cannot be used for any direct revenue-generating activity or employment in India.
  • Employment visas are for foreign nationals who are gainfully employed in an Indian firm. It is valid for one year or the duration of the employment contract.

Conclusion

For organizations planning to expand into India or build a team, understanding and complying with the Indian employment laws and tax regulations is crucial. But the process of navigating the employment climate in India can be challenging and time-consuming. However, this complex process can be simplified by partnering with a global employment and payroll platform like Skuad. 

Skuad’s global employment and payroll platform handles your entire employment lifecycle so you can scale business operations in India with less effort, reduced cost, and efficient HR administration. To know more about Skuad, book a demo today.

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