Problems we solve

Services

Solutions

Why CXC

Resources

Connect

Global Hiring Contact us

Let´s talk

OUTLINE

Minimum wage in India

India payroll

Statutory benefits in India

Employee benefits in India

Partner with a reputable global payroll service provider

Payroll in India

India’s regulatory environment in terms of employment and taxation is notoriously complex, with legislation varying nationally, state-wide, and locally. Non-compliance not only carries legal and financial risks but also has the potential to tarnish your hard-earned reputation.

Companies that opt to establish an in-house payroll system must deal with the specific requirements of India’s labour laws and tax regulations. This often involves significant investment in time, technology, highly skilled personnel, and infrastructure.

To overcome these hurdles, companies can partner with a reputable payroll provider, such as CXC, that has the expertise to navigate the complexities involved in hiring talent in India.

By partnering with a global payroll service provider, you can eliminate overhead costs while ensuring you pay only for the services you need—enabling you to focus on other important aspects of your business, such as market expansion, innovation, and growth.

Leveraging over 30 years of experience managing international payroll, we crafted this detailed guide to arm you with the essential knowledge regarding payroll in India. It includes information on the laws governing payroll and wages, statutory benefits, and other supplementary employee benefits, all of which are intended to help you establish a competitive compensation package for your top-tier talent in India.

Minimum wage in India

Is there a national minimum wage in India?

India does not have a single, enforceable national monthly minimum wage in 2026.

Although the Code on Wages, 2019 introduced the concept of a national floor wage, it does not set a binding national minimum wage. Instead:

State governments remain responsible for setting and notifying minimum wages.
Rates vary by state, occupation, industry, skill level, and sometimes location (urban/rural).

Employers must comply with the highest applicable minimum wage notified for the employee’s category and location.

Minimum wage per month in India

There is no uniform monthly minimum wage across India. However, in many large states and central-schedule employments, typical benchmark ranges in 2026 are approximately:

Unskilled workers: INR 16,000 – 18,000 per month.
Semi-skilled workers: INR 18,000 – 20,000 per month.
Skilled workers: INR 20,000 – 22,000 per month.

These figures:

Are indicative only.
Often include a basic wage + variable dearness allowance (VDA).
Differ materially by state and sector.

Employers must always rely on state-issued wage notifications, not national averages.

Minimum wage per hour in India

India does not generally regulate minimum wages on an hourly basis.

Minimum wages are usually set as:

Daily rates, or
onthly rates, assuming a standard working schedule.

Some states publish hourly equivalents for specific categories, but there is no nationally applicable hourly minimum wage.

Calculation of minimum wage in India

Minimum wages in India are calculated based on:

Skill classification (unskilled, semi-skilled, skilled, highly skilled).
Industry or scheduled employment.
Geographical area (state, zone, urban/rural).
Cost-of-living adjustments, often through Dearness Allowance (DA/VDA).

The purpose is to ensure workers can meet basic living needs, but enforcement and levels vary widely by region.

Regulation of minimum wage and payroll in India

The Code on Wages, 2019 remains the core framework governing wages in India. It consolidates earlier legislation and applies across all sectors.

Key points for employers:

Universal application: Covers all employees, regardless of sector
Minimum wage compliance: Employers must pay at least the applicable state-notified minimum wage
Timely payment: Wages must be paid within statutory timelines
Bonuses: Eligibility and calculation rules continue to apply where thresholds are met
Equal remuneration: Equal pay for equal work regardless of gender is mandatory

Non-compliance may result in:

Monetary penalties.
Prosecution for repeat or serious violations.

Minimum wage for international students and foreign workers

There is no separate minimum wage for:

International students.
Foreign nationals.

They must be paid at least the applicable minimum wage for the role, location, and skill category under state law.

India payroll

Payroll laws in India

To ensure your organisation operates seamlessly in India, you must familiarise yourself with the laws governing payroll to maintain compliance. Aside from the Code on Wages, 2019, here are some laws governing payroll in India that you should know:

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

This act establishes provident funds, pension funds, and deposit-linked insurance for employees in factories and other establishments.

Employees’ State Insurance Act, 1948

This law governing payroll in India mandates the provision of certain benefits to employees in cases of sickness, maternity, and employment injury. It covers an array of health-related contingencies that could impact employees.

Payment of Gratuity Act, 1972

The act provides for a gratuity payment to employees working in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments with ten or more employees. Employees who provide long service receive a gratuity, a loyalty benefit that serves as an excellent tool to acknowledge their dedication.

Professional Tax Act

In India, professional tax is levied by various state governments on individuals earning an income by way of salary or practicing a profession. The rates and methods of collection vary from state to state, but compliance with this tax is mandatory for businesses operating within these jurisdictions.

Income Tax Act, 1961

This comprehensive act governs the taxation of the income of individuals, corporations, and other entities. For payroll in India, it mandates the deduction of tax at source (TDS) on salary, which employers need to adhere strictly to ensure compliance with tax regulations.

Payroll structure in India

The payroll structure in India, which outlines the salary breakdown, is designed to divide the Cost to Company (CTC) into various components. These components contribute to determining the employee’s in-hand salary.

Components of payroll in India

The payroll structure in India usually consists of the following elements:

Basic salary: For payroll, this is the foundational component of an employee’s compensation package, usually 35-50% of the CTC.
House RentAllowance (HRA): Typically, 40-50% of the basic salary for non-metro cities and 50% for metro cities.
Conveyance: Reimbursement for travel from home to work, exempted up to a certain limit under the Income Tax Act.
Medical allowance: Fixed medical reimbursement.
Leave Travel Allowance (LTA): For travel expenses when an employee is on leave from work.
Special allowance: In India, it’s common to have a special allowance in place for employees. Any remaining part of the salary after the above components are allocated.

Payroll deductions in India

In India, the employee’s salary is subject to the following payroll deductions:

Provident Fund (PF): A mandatory contribution towards the employee’s retirement fund, which is 12% of the basic salary and dearness allowance.
Professional Tax (PT): Levied by state governments, with rates and exemptions varying from state to state.
Tax Deducted at Source (TDS): Income tax is deducted based on the employee’s applicable tax slab.

These elements reflect the common terms and concepts relevant to the payroll process and compliance with statutory regulations in India.

Payroll cycle in India

In general, the payroll cycle is typically monthly, with wages normally disbursed on or after the 28th of each month.

13th month salary in India

As for the 13th-month pay, it is not universally mandated across India. The payment of a 13th-month bonus is not required by law but can be voluntarily given by employers or stipulated by company policy. When it is provided, it is usually paid at the end of the financial year. For low-income earners, 13th month salary is mandatory and paid as a percentage of the annual salary within eight months of the end of the financial year.

Statutory benefits in India

Businesses in India are legally required to provide their employees with certain statutory benefits. The list of statutory benefits for employees in India ensures a level of protection and welfare for the workforce, while also fostering a sense of security.

List of statutory benefits for employees in India

Administering these statutory benefits is crucial for employers to ensure compliance and employee satisfaction. The following is a list of statutory benefits for employees in India that companies looking to do business in the country should keep in mind:

Employees’ Provident Fund (EPF)

This statutory benefit is a mandatory saving scheme designed to offer employees financial stability upon retirement. Both the employee and the employer make contributions, typically amounting to 12% of the basic salary plus dearness allowances.
This statutory benefit in India provides a number of benefits to employees, including:

Retirement benefits: EPF serves as a robust retirement savings plan for employees. Contributions accumulate over time, providing a substantial fund upon retirement.
Pension benefits: Part of the EPF contribution goes towards the Employee Pension Scheme (EPS). This provides a pension for employees who retire after 58 years.
Life insurance cover: The Employee Deposit Linked Insurance Scheme (EDLI) offers life insurance cover, providing financial security to the employee’s family in the event of the employee’s demise.
Tax benefits: Contributions made to the EPF are eligible for tax deductions under Section 80C of the Income Tax Act, which can significantly reduce taxable income.
Emergency withdrawal: Employees can withdraw funds from their EPF account for specific purposes, such as medical emergencies, house purchase or construction, and education or marriage of children, making it a helpful financial resource during emergencies.
Loan collateral: Employees can use their EPF account balances as collateral to secure loans, giving them an additional financial source when needed.
Compounded interest: The EPF accounts generate an annual compound interest rate.

Gratuity

Gratuity is a gratitude payment made by the employer to employees who have completed five or more years of service in the company. This statutory benefit in India is calculated based on the last drawn salary and the years of service.

Employees’ State Insurance (ESI)

This scheme aims to provide socio-economic protection to employees earning ₹21,000 or less per month, covering medical, maternity, disability, and death benefits. The comprehensive coverage under ESI ensures that employees’ health and well-being are protected, fostering a supportive work environment.

Maternity benefit

The Maternity Benefit Act, 1961, entitles female employees to paid time off from work to take care of their newborn. The period of maternity leave has been extended to 26 weeks, encouraging women to continue their professional journey post-childbirth.

Bonus payments

Employees are eligible to receive an annual bonus based on the organization’s profitability, performance, and statutory obligations under the Payment of Bonus Act, 1965.

Employee benefits in India

In India, to stay competitive and attract top talent, many employers offer a host of non-statutory benefits in addition to the mandatory ones outlined by law. These non-statutory or supplementary employee benefits provide added value to employees, enhancing their overall compensation package and workplace satisfaction.

Here are some non-statutory employee benefits that are common in India:

Health insurance in India

Beyond the mandatory Employees’ State Insurance (ESI), many businesses in India offer comprehensive health insurance plans that cover employees and their families against a wide range of medical expenses. Offering health insurance as a non-statutory benefit helps organisations ensure the well-being of their employees and can help with their attraction and retention efforts.

Travel allowances in India

To ease the financial burden of commuting, companies often provide travel allowances or transportation services. This not only includes the conveyance allowance but can also extend to company-operated vehicles or shuttle services, facilitating easier and more comfortable commutes for employees.

Disability coverage in India

Apart from health insurance, additional disability coverage is another significant benefit provided by some employers. This insurance provides financial protection to employees in the event of disabilities resulting from accidents or injuries, ensuring their financial stability during difficult times.

Employee wellness programs in India

Companies are increasingly focusing on employee wellness, offering programs that promote physical health, mental well-being, and a balanced lifestyle. These programs can include gym memberships, counselling services, recreational activities, and workshops on wellness topics. Employee wellness programs not only contribute to a healthier workforce but also demonstrate an employer’s commitment to employees’ holistic health, thus attracting a more quality workforce.

Retirement benefits in India

Aside from the statutory provident fund contributions, many companies provide an additional layer of financial security through customised retirement plans, such as superannuation benefits, which are pivotal in ensuring long-term workforce stability and loyalty.

Performance bonuses in India

To incentivise high performance, organisations in India often offer bonus schemes based on individual or company performance. This helps align employee objectives with the overarching business goals and boosts motivation and retention.

Additional leave and flexible working options in India

Besides the mandated leave entitlements, businesses frequently offer flexible leave policies that include more generous vacation time, sabbaticals, and flexible working hours. This flexibility is key to supporting employees in balancing their professional and personal lives, leading to a more engaged workforce.

Professional development in India

Investing in employee growth through training programs, upskilling courses, and education assistance is a common benefit. Such opportunities for professional advancement are crucial for attracting and retaining exceptional talent.

Food services or allowances in India

Catered meals, subsidies in company cafeterias, or meal vouchers are additional non-statutory benefits that some employers in India provide.

Employee benefits after resignation in India

In India, employees are entitled to several benefits after their resignation, provided they meet certain criteria. Below are some of the benefits employees can get after they resign:

Full and final settlement: This process involves settling all dues and benefits accrued to the employee, including unpaid salary, accrued leave payments, and any other compensations owed at the time of resignation. Employers are required to complete this process within a specified period, typically 30 to 45 days after the end of employment.
Gratuity benefit: This benefit is paid to employees who have completed at least five years of service with an organisation. The amount is a lump sum based on the employee’s last drawn salary and the number of years of service.
Employee Provident Fund (EPF): When employees in India resign, the EPF allows them to withdraw a portion of their savings post-resignation, assuming they do not take up another job. Specifically, they’re entitled to withdraw up to 75% of their EPF balance after being unemployed for one month. If two months of unemployment have passed, they are allowed to withdraw the entire amount from their EPF account.

Partner with a reputable global payroll service provider

Navigating the complexities of international payroll management can be overwhelming, but it doesn’t have to be. Partnering with a reliable global payroll service provider like CXC can be a strategic advantage as you expand your operations into new markets. With our extensive knowledge and team of compliance experts, you can ensure adherence to labour laws and regulations, mitigate risks, and achieve international success.

Whether you want to outsource your payroll in India or across multiple jurisdictions, we have a tailor-made solution for your unique needs.

Contact our team today

Read about EoR services

FAQ's

1. What are the steps to run payroll in India?

To run payroll in India, employers must register for the applicable tax and social security schemes, calculate gross and statutory wages, make required deductions and contributions, pay employees, and submit payroll reports to the relevant authorities.

Each payroll cycle typically includes calculating salary, allowances, bonuses and overtime; deducting income tax through TDS; and processing applicable EPF, ESI, Professional Tax and Labour Welfare Fund contributions. From 1 April 2026, salary TDS is governed by section 392 of the Income Tax Act, 2025. Employers must calculate projected taxable salary, apply the employee’s applicable tax regime and deductions, deposit the tax withheld, submit the required TDS returns and provide the applicable payroll and tax documentation.

Under India’s Labour Codes, employers must also ensure their wage structures meet the definition of wages under the Code on Wages, 2019. Where specified excluded components exceed 50% of the remuneration calculated under the statutory definition, the excess is added back when calculating statutory wages.

Because payroll in India involves both central and state requirements, the employee’s work location affects which registrations, deductions and contribution rules apply. Payroll should also track attendance, leave, overtime, benefits and changes to the employee’s work location or legal status.

2. Do you need a local entity to run payroll in India?

No. A foreign company does not necessarily need to establish its own Indian entity to hire and pay employees in India. It can use an Employer of Record (EOR), which employs workers locally and runs compliant India payroll through its Indian employing structure.

With an EOR, the provider manages the local employment contract, payroll calculations, statutory deductions, social security contributions and required payroll reporting. The client continues to manage the employee’s day-to-day role and performance.

Companies that establish their own Indian entity can operate payroll directly but must complete the required employer registrations and maintain ongoing payroll, tax and labour compliance.

An EOR can therefore be useful for both growing businesses and enterprise organisations that want to hire in India without adding another employing entity.

3. What registrations are required to set up payroll in India?

Setting up payroll in India requires several tax and social security registrations, including EPFO, ESIC and a Tax Deduction Account Number (TAN). State-specific registrations may also apply based on where employees work.

The main registrations include:

EPFO (Employees’ Provident Fund Organisation): For Provident Fund, pension and related social security contributions where applicable.

ESIC (Employees’ State Insurance Corporation): For Employee State Insurance contributions where coverage applies.

TAN (Tax Deduction Account Number): Required to deduct and report income tax from employee salaries.

Professional Tax: Required in states that levy this employment-related tax.

Labour Welfare Fund (LWF): Required in states where the fund applies.

Shram Suvidha Portal: Provides unified registration and compliance services for applicable central labour requirements.

The employer may also require a Permanent Account Number (PAN), corporate and goods-and-services registrations, and payroll bank arrangements, depending on its structure and activities. Not every registration applies to every employer. Requirements vary based on factors such as workforce size, employee earnings and work location.

4. What payroll taxes must employers pay in India?

Employers running payroll in India must withhold employee income tax and may also need to make or deduct contributions for provident fund, pension, health insurance and state-level employment schemes.

Income tax is deducted from an employee’s salary through Tax Deducted at Source (TDS) and paid to the Indian tax authorities. For salary paid from 1 April 2026, the withholding obligation is governed by section 392 of the Income Tax Act, 2025. TDS is an employee tax withheld by the employer rather than an additional employer payroll tax.

Depending on eligibility, payroll may also include:

Employees’ Provident Fund (EPF): A retirement savings scheme funded by employer and employee contributions. The standard contribution is generally 12% of basic wages, dearness allowance and retaining allowance for both the employee and employer, subject to applicable coverage and wage rules.

Employees’ Pension Scheme (EPS): A pension benefit funded through part of the employer’s provident fund contribution. Generally, 8.33% of the relevant wages is allocated from the employer’s EPF contribution to EPS, subject to the statutory ceiling and membership rules.

Employees’ Deposit Linked Insurance (EDLI): Employer-funded life insurance linked to provident fund membership. The employer contribution is generally 0.5% of the relevant pay, subject to the applicable scheme rules.

Employees’ State Insurance (ESI): Contributions that provide eligible employees with medical and social security benefits. The standard contribution rates are generally 3.25% for the employer and 0.75% for the employee, subject to the applicable wage ceiling and coverage rules.

Professional Tax and Labour Welfare Fund (LWF): State-level deductions or contributions that apply in certain states.

Under the Code on Wages, 2019, employers must also structure salary correctly because the statutory definition of wages can affect social security and other employment-related calculations.

5. How much does payroll administration cost in India?

The cost of payroll administration in India varies based on employee numbers, number of states, payroll complexity and whether payroll is managed internally, through a payroll provider or as part of an EOR service.

A company employing people across several Indian states may face higher administration costs because Professional Tax, Labour Welfare Fund and other requirements can vary by location. Variable pay, bonuses, benefits, expense payments and international employees can also add complexity.

Employers should consider the total cost of India payroll, including payroll processing, software, compliance support, statutory filings and the internal HR or finance resources needed to manage it. Implementation fees, off-cycle payments, year-end tax documentation and employee support may be charged separately by some providers.

With an EOR, payroll administration is typically included within the wider employment service, alongside contracts, statutory contributions, benefits and HR administration.

6. When should companies outsource payroll in India?

Companies should consider outsourcing payroll in India when they lack local payroll expertise, employ people across multiple states, are scaling quickly or want to reduce the internal workload of managing tax and statutory compliance.

India payroll combines national requirements such as income tax, EPF and ESI with state-specific obligations such as Professional Tax and Labour Welfare Fund contributions. This can become difficult for international HR and finance teams to manage as headcount and locations increase.

Outsourcing can also help when payroll includes bonuses, allowances, variable compensation or different employee benefit structures. It may be particularly useful following the implementation of the four Labour Codes and the transition to the Income Tax Act, 2025 and Income Tax Rules, 2026.

For companies without an Indian entity, an Employer of Record can go further than payroll outsourcing by becoming the local employer and managing payroll alongside contracts, statutory benefits and employment administration.

7. What employee benefits must employers provide in India?

Mandatory employee benefits in India can include Provident Fund, pension, ESI, gratuity, statutory bonus, paid leave and maternity benefits, although eligibility varies by employee, salary, establishment and location.

The Code on Social Security, 2020 provides the current framework for major social security benefits, including EPF, EPS, ESI, gratuity and maternity benefits. The Labour Codes came into force nationally on 21 November 2025. The Social Security (Central) Rules, 2026 and subsequent notifications provide further implementation detail.

Employers may also have to provide state-specific leave, holidays and Labour Welfare Fund benefits. Other statutory entitlements can include compensation for employment injuries and benefits linked to an employee’s category or industry. Fixed-term employees can qualify for gratuity after one year of service under the applicable rules.

Beyond statutory employee benefits in India, many employers offer private medical insurance, enhanced retirement benefits, life insurance, performance bonuses and wellness benefits to compete for talent.

8. What are the minimum wage and salary expectations in India?

There is no single uniform minimum-wage rate across India. Employers must follow the minimum wage rate set for the employee’s state, type of work and skill category, such as unskilled, semi-skilled, skilled or highly skilled work.

For example, minimum wage requirements can differ between Delhi, Maharashtra, Karnataka and Tamil Nadu, and rates may also vary within a state by industry or employment category. Employers hiring across several Indian locations therefore need to check the applicable rate for each employee.

Under the Code on Wages, 2019, the central government can set a floor wage, and minimum wages set by the appropriate government cannot fall below it. Employers must apply the higher legally binding rate where a state or sector-specific minimum exceeds the central floor. Rates should be checked regularly because governments may revise them through notifications and variable dearness allowance adjustments.

For professional roles, the statutory minimum wage in India is usually only the starting point. Actual salary expectations are driven by the city, industry, experience and demand for skills, particularly in markets such as Bengaluru, Mumbai, Delhi NCR and Hyderabad.

9. What is the Diwali bonus and is it mandatory in India?

No. Employers in India are not legally required to pay a separate Diwali bonus just because it is Diwali. However, eligible employees are entitled to an annual statutory bonus under the Code on Wages, 2019.

The statutory bonus applies to employees who fall within the wage limit set by the government and have worked for at least 30 days during the accounting year. It applies only where the establishment and employee fall within the statutory bonus provisions. The minimum bonus is 8.33% of wages, while the maximum can reach 20%, depending on allocable surplus and the applicable calculation rules.

Because many Indian employers traditionally pay annual bonuses around the Diwali period, the payment is often referred to as a Diwali bonus. Where a payment satisfies the statutory annual-bonus obligation, payroll records should identify how it was calculated and distinguish it from any voluntary festival payment.

Employers can also choose to provide an additional Diwali bonus, cash payment or gift as a company benefit, but this is separate from the statutory annual bonus.

10. How does CXC manage employee benefits accurately alongside payroll in India?

CXC manages payroll and employee benefits in India through its Employer of Record (EOR) service, taking responsibility for local payroll calculations, statutory deductions, social security contributions and benefits administration throughout the employee lifecycle.

CXC coordinates salary payments with Tax Deducted at Source (TDS), Employees’ Provident Fund (EPF), pension, Employees’ State Insurance (ESI), gratuity and other applicable employee benefits in India. This helps ensure payroll and benefits are calculated together rather than managed through separate processes.

CXC also manages state-specific requirements, including Professional Tax and Labour Welfare Fund contributions where applicable, which is important for businesses with employees in different Indian states.

For international and enterprise clients, CXC provides the local infrastructure to manage onboarding, payroll, benefits, leave and offboarding while keeping employment administration consistent across a growing workforce.

Compliantly hire workers anywhere with CXC

With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.

Learn more

DISCLAIMER: The information contained on this website is provided for general informational purposes only and should not be construed as legal, tax, or other professional advice on any subject matter. While we endeavor to ensure that the content is accurate and up to date, we make no warranties or representations of any kind regarding the completeness, accuracy, reliability, suitability, or availability of the information contained herein. The content on this site is not intended to be a substitute for professional advice. Users should not act or refrain from acting based on any information on this website without seeking the appropriate legal, tax, or other professional advice tailored to their specific circumstances from qualified professionals. We expressly disclaim all liability in respect to actions taken or not taken based on any or all of the contents of this website. Use of the information on this site does not create an attorney-client, tax advisor-client, or any other professional-client relationship between the user and the website or its authors.

BLOG

Helping businesess to compliantly engage talent since 1992