India payroll runs on a monthly cycle, with salaries due by the 7th of the following month. Employers must contribute to the Employees’ Provident Fund (EPF) and, where applicable, the Employees’ State Insurance (ESI) scheme, withhold income tax through TDS each month, and comply with state-specific minimum wage rates. Getting each of these right starts with understanding how Indian salary structures work.
How payroll works in india
Indian payroll is monthly. All salaries must be paid in Indian Rupees (INR / ₹), and the legal deadline is the 7th of the month following the pay period. So for work done in April, you must pay by May 7th.
The structure of an employee’s salary package matters for compliance, not just for presentation. Because EPF contributions and income tax calculations are both based on the basic salary component, how you split a CTC (Cost to Company) package directly affects your statutory obligations.
Salary structure in india
CTC is the total annual cost to the employer, including all salary components and employer contributions. Employees don’t take home the full CTC figure. What they receive is their net salary after deductions.
A standard Indian salary package breaks down like this:
| Component | Typical calculation |
|---|---|
| Basic salary | 50% of CTC |
| House Rent Allowance (HRA) | 25% of basic salary |
| Leave Travel Allowance (LTA) | 10% of basic salary |
| Special Allowance | Remainder of CTC |
This structure isn’t just a convention. EPF contributions are calculated on basic salary plus Dearness Allowance (DA). TDS (income tax withholding) is also based on the taxable salary, which the basic salary component directly influences. If you inflate special allowances to reduce the basic salary figure, you may lower EPF costs in the short term, but you risk non-compliance if EPFO determines the structure was designed to avoid contributions.
Minimum wages in india
India doesn’t have a single national minimum wage for all workers. Minimum wages are set at the state level and vary by skill category. Employers must apply the minimum wage for the state where the employee works, not where the company is headquartered.
Delhi’s 2025 rates illustrate the skill-based structure:
| Skill category | Monthly minimum wage (Delhi, 2025) |
|---|---|
| Unskilled | ₹18,456 |
| Semi-skilled | ₹20,371 |
| Skilled | ₹22,411 |
If you’re hiring across multiple states, you need to verify the correct rate for each location separately. Rates are revised periodically, so build a process to check for updates at least annually.
Epf deductions and contributions
The Employees’ Provident Fund (EPF) is India’s mandatory retirement savings scheme, administered by the Employees’ Provident Fund Organisation (EPFO). Both the employer and employee contribute 12% of the employee’s basic salary plus DA each month.
There is a wage ceiling: the 12% calculation is capped at a basic salary of ₹15,000 per month, so the maximum EPF contribution from each side is ₹1,800 per month. For employees earning above ₹15,000 basic, contributions can continue on the actual basic salary, but this requires mutual consent and specific registration steps.
The employer deducts the employee’s 12% contribution from their gross salary, adds the employer’s own 12%, and remits the combined total to EPFO by the 15th of the following month.
EPF applies to establishments with 20 or more employees. Once covered, an employee remains covered even if the headcount later falls below 20.
Esi deductions and contributions
The Employees’ State Insurance (ESI) scheme provides health insurance and related benefits to eligible employees. Contribution rates are:
| Party | Rate |
|---|---|
| Employer | 3.25% of gross wages |
| Employee | 0.75% of gross wages |
ESI only applies where an employee’s gross monthly wage is ₹21,000 or below. For employees earning above this threshold, ESI doesn’t apply. The scheme also only covers establishments with 10 or more employees.
Like EPF, the employer deducts the employee’s contribution and remits the combined total. ESI contributions give employees access to medical care, sickness benefits, maternity benefits, and disability coverage through the Employees’ State Insurance Corporation (ESIC).
Tds: income tax withholding
TDS (Tax Deducted at Source) is how India collects income tax from salaried employees. The employer doesn’t wait for the employee to file a return. Instead, you estimate the employee’s total taxable income for the financial year at the start of the year, divide the estimated tax liability by 12, and withhold that amount from each monthly salary payment.
For FY2025-26, the new tax regime is the default for salaried employees. Salaried employees get a standard deduction of ₹75,000 under the new regime. The tax slabs are:
| Annual taxable income | Tax rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
You recalculate the TDS estimate each month as the year progresses, adjusting for any changes in salary or allowances. At the end of the financial year, you issue each employee a Form 16. This is a certificate of TDS deducted and deposited, and employees use it to file their annual income tax returns. The deadline to issue Form 16 is June 15 each year.
Professional tax
Professional Tax (PT) is a state-level tax on employment income. Not every state levies it, and the rates vary. Maharashtra, for example, charges up to ₹2,500 per year.
The employer deducts PT from the employee’s salary each month and remits it to the relevant state tax authority. The exact deduction schedule depends on the state’s slab structure. If you have employees in multiple states, you need to manage PT separately for each state, since there is no unified system.
Payslip and record-keeping requirements
You must issue a payslip to every employee each month. The payslip must show:
- Gross pay
- All deductions individually itemised (EPF, ESI, TDS, PT, and any other deductions)
- Net pay
Payslips can be issued in paper or electronic form. Employers must also maintain payroll registers and related employment records. Under the Payment of Wages Act and various state labour laws, records generally need to be retained for a minimum of three years, though some records require longer retention periods depending on the statute.
Running payroll in india without a local entity
Foreign employers who don’t have a registered legal entity in India can’t run payroll directly. To hire and pay employees compliantly, you need either to set up an Indian subsidiary or to work with an Employer of Record (EOR).
An EOR becomes the legal employer of your India-based staff. The EOR handles payroll processing, EPF and ESI registration and contributions, TDS calculation and remittance, PT deductions, Form 16 issuance, and monthly compliance filings. You manage the employee’s day-to-day work. The EOR handles everything on the statutory side.
This is the fastest route to compliant employment in India without the time and cost of entity setup. When you’re evaluating EOR services, look for a provider with established EPFO and ESIC registration, in-country payroll processing, and experience managing multi-state compliance for distributed teams.
RemotePass operates across India and handles the full payroll and compliance stack for foreign employers.
Frequently asked questions
What happens to EPF if an employee earns more than ₹15,000 basic salary?
The mandatory contribution is capped at ₹1,800 per month (12% of the ₹15,000 wage ceiling). For employees earning above ₹15,000 basic, you and the employee can choose to contribute on the actual basic salary instead of the capped amount. This requires specific steps at registration. If you don’t make that election, the contribution stays capped at ₹1,800 from each side.
Does ESI still apply if an employee’s salary goes above ₹21,000 mid-year?
If an employee’s gross monthly wage crosses ₹21,000 during a contribution period, they remain covered under ESI until the end of that contribution period (a half-year period, April to September or October to March). After the contribution period ends, ESI stops applying if the salary is still above the threshold.
What does CTC mean and why doesn’t it equal take-home pay?
CTC stands for Cost to Company. It’s the total annual cost the employer incurs for that employee, including the employer’s share of EPF and other benefits. The employee takes home less because their share of EPF, ESI, TDS, and PT are all deducted from gross salary before payment. For most employees, there’s a significant gap between CTC and net pay.
When must employers issue Form 16?
Employers must issue Form 16 to all salaried employees by June 15 each year, covering the financial year that ended March 31. Form 16 has two parts: Part A covers TDS deducted and deposited, and Part B is a detailed salary breakdown. Employees use Form 16 to file their income tax returns.
How do I know which minimum wage applies to my employees?
Minimum wages in India are state-specific and vary by skill category (unskilled, semi-skilled, skilled). You need to apply the rate for the state where the employee performs their work. If you have employees in multiple states, each state’s rates apply independently. The relevant state labour department publishes current rates, and they’re revised periodically, so check for updates at least once a year.
