.png)
India, with a population of 1.417 billion, is currently one of the world's fastest-growing economies. Undoubtedly, there are several emerging sectors, technological advancements, and multiple trends in any economy growing at this rate. This expansion necessitates companies to expand, hire new employees, and manage a large workforce.
India is a major player in the macroeconomic environment, and it is one of the world's top exporting countries, trading with partners in Asia, Africa, Europe, and North America. India is a member of the United Nations, the World Trade Organization, and the Commonwealth of Nations, and it was ranked 63 in the World Bank's Ease of Doing Business Survey in 2019. The Indian Rupee (INR) is the currency of India.
Payroll processing in India is a daunting process because it includes numerous financial elements such as gross salary, net salary, bonuses, daily wages, leave, payroll laws India, and many more to assess employment costs and employee costs that are part of each employee's hire-to-retirement journey with an organization.
This guide will teach you the fundamentals of payroll in India, the process of payroll computation, payroll tax in India, the payroll cycle, contributions made by employer and employee, and employee benefits as well. So, let's get started.
Payroll Cycle & Working Hours in India
The financial year for income tax calculation in India runs from April 1 to March 31 each year. As a result, the 31st of March is an important deadline for meeting financial obligations.
The Payroll Cycle in India is the time between payouts and must follow the rules and regulations of the Indian government. A pay cycle can be weekly, monthly, or based on a contract, according to the company's payroll policy. The payroll cycle in India is typically monthly, with salaries typically paid on or around the 28th of each month. In India, the average workweek is 48 hours long, with approximately 8 hours of work per day. In India, the normal working week runs from Monday to Saturday. Working hours are from 9.30 a.m. to 6 p.m.
Payroll Tax in India
According to payroll laws India, payroll contributions are divided into three categories: employer payroll contributions that comprise the employment cost, employee payroll contributions that comprise the employee cost, and employee income tax. The employer's payroll contributions are further subdivided into several components: 12% for the Employee's Provident Fund (EPF) and EPS, and 4.75% for the Employee's State Insurance (ESI). As a result, employers in India pay 16.75% of employment tax, which is divided between pension and mandatory state insurance.
Social Security Contributions for Payroll Tax in India
Employee Provident Fund (EPF) and Employee Pension Scheme (EPS) are social security systems for payroll tax in India, and it is the employer's responsibility to enroll and make contributions to them. The 12% paid for these schemes is divided into 8.33% for EPS and 3.67% for the EPF.
- Employee’s Provident Fund (EPF) - All organizations with more than 20 employees are required to contribute to the EPF, as are employees earning up to 15,000 INR. Employees can contribute voluntarily above this limit. These contributions can be withdrawn by the employee after two months of unemployment or at the age of 58, but special events like children's education, weddings, loan repayment, and so on, also qualify.
- Employee’s Pension Scheme (EPS) - Out of a salary of up to 15,000 INR, the EPS receives the majority of the employer's contribution (employment cost) which is 8.33%. The EPS retirement is only available after the age of 58 and is paid for the rest of the employee's life.
- Employee’s State Insurance (ESI) – For companies having more than 10 employees, the employer’s contribution is mandatory for ESI to ensure medical and monetary help to employees in case of injury, sickness, or maternity leave. According to the Employees’ State Insurance Act, employees earning up to 21,000 INR per month are eligible for this scheme.
Employer Payroll Contribution (Employment Cost)
Employee Payroll Contribution (Employee Cost)
Employee Income Tax in India
The fiscal year in India runs from April 1 to March 31. The employee must also pay income tax based on their earnings. The tables below show the Income Tax rates for the Fiscal Year 2022-2023 and Assessment Year 2023-2024.
Income tax must be paid in India by any individual, Hindu Undivided Family (HUF), company, or organization that generates income; it can be deducted at the source or returned to the Income Tax Department.
Employee Benefits in India
- Sick Leaves – As per payroll laws India, employees working for at least 3 months are entitled to 15 days of sick leave. They must, however, submit a medical certificate within 48 hours of the first day of sick leave. Sick pay is calculated at 70% of the daily salary rate.
- Casual Leaves - Employees can avail of casual leaves for travel, vacation, rest, and family events which can range from 3 to 5 days up to 7 days. Some companies do not allow employees to take all of their casual leaves at once, while others do.
- Maternity Leaves - It is granted to new mothers for a period of 12 to 26 weeks, depending on the company's policy. During the initial period, many expectant mothers take advantage of other maternity leaves by working overtime for the company according to their comfort level. Following the expected delivery date, employers are required by the Maternity Benefit Act of 1961 to provide 12 weeks of paid leave to any woman who has worked for at least 80 days in the last 12 months.
- Paternity Leaves – These leaves are granted to the expectant father. It is not included in the mandatory category of the leave policy. Companies typically provide 1-2 weeks of leave to care for their child after delivery.
- Overtime Pay - Overtime is paid for all hours worked over the standard 48 hours per week and is governed by employment contracts, which are typically calculated at 200% of the regular pay rate.
- 13th Salary – In Payroll Laws India, the 13th salary is usually mandatory while payroll processing in India and is paid as a percentage of the annual salary within eight months of the end of the fiscal year.
