India Payroll: Complete 2026 Guide for US Companies

India payroll is the monthly process of calculating salaries, applying statutory tax deductions like EPF, ESI, and TDS, disbursing employee pay in INR, and filing compliance returns with the income tax department, EPFO, and ESIC.

2026 is the most complex year to run payroll in India. The four Labor Codes replaced 29 older payroll regulations in November 2025, and the Income Tax Act 2025 takes effect April 1, 2026.

This guide covers everything global companies need: the payroll process, income tax and social security contributions, minimum wage requirements, compliance deadlines, and your options for managing payroll in India without a local entity.

What is India payroll?[toc=What is India Payroll]

India payroll is the end-to-end process of calculating employee pay, applying mandatory tax deductions and employer contributions, disbursing salaries monthly in INR, and filing compliance returns with relevant authorities including the income tax department, EPFO, and the Employees State Insurance Corporation.

It covers attendance data collection, gross salary calculation, provident fund remittance, income tax withholding via TDS, professional tax deductions, and all payroll compliance filings. Employers must also maintain digital payroll records and generate payslips every month.

The biggest adjustment for US companies is the CTC model. Cost to Company includes base salary, allowances, and employer contributions to provident fund, health insurance, and gratuity. It represents total employer cost, not just employee take-home pay.

India also has central and state-level payroll regulations. Minimum wage rates, professional tax, and employee benefits like sick leave and public holidays vary by state, making multi-city payroll more complex than managing payroll in a single US state.

For a broader view of payroll compliance and statutory obligations in India, see Payroll Compliance in India 2026: Everything You Must Know.

Now let's look at the key laws that govern payroll in India right now.

What are the key payroll laws in India for 2026?[toc=Payroll Laws in India]

India payroll compliance in 2026 runs under two overlapping legal frameworks: the four Labor Codes active since November 2025, and the Income Tax Act 2025 effective April 1, 2026.

The four Labor Codes (effective November 21, 2025)

These four codes replaced 29 older laws including the Payment of Wages Act, the Minimum Wages Act, the Industrial Disputes Act, and the Miscellaneous Provisions Act:

• The Code on Wages requires basic salary plus dearness allowance to be at least 50% of total CTC, raising employer contributions for provident fund, gratuity, and social security contributions.
• The Code on Social Security extends state insurance and provident fund coverage to gig workers, platform workers, and fixed-term employees for the first time.
• The Industrial Relations Code governs terminating employees, dispute resolution, and severance pay, with final wage settlement required within two working days of exit.
• The Occupational Safety Code sets new legal obligations around working conditions, including rights for employees working night shifts.

The Income Tax Act 2025 (effective April 1, 2026)

The Income Tax Act 2025 replaces the Income Tax Act of 1961. TDS calculation methods, Form 24Q, and Form 16 formats all change under the new act. Any payroll software not updated before April will cause tax filing errors.

Other laws still in force

The Employees Provident Fund Act, the Employees State Insurance Act, the Payment of Bonus Act, and state-level Shops and Establishments Acts all remain active. Each of India's 28 states sets its own minimum wage rates, sick leave rules, maternity benefit entitlements, and public holidays on top of central laws.

From our experience helping 300+ global companies run payroll in India, state-level variations are where most compliance issues happen, not the central laws most HR teams prepare for.

Now let's look at how the monthly payroll cycle actually runs.

What is the payroll cycle in India?[toc=Payroll Cycle in India]

ndia runs on a monthly payroll cycle. Salaries must be disbursed by the 7th of each month under the Code on Wages, and most compliance filings follow within the same window.

The financial year runs from April 1 to March 31. Employees declare their income tax regime at the start of each financial year, and employers adjust TDS calculations accordingly for all 12 months.

Unlike US payroll, there is no biweekly or bimonthly option. Every employer in India, regardless of size or industry, processes payroll once a month.

Here is how that monthly process works step by step.

How does the India payroll process work step by step?[toc=India Payroll Process]

Running payroll in India follows six steps every month. Miss any one of them and you are looking at penalties from the income tax department, EPFO, or ESIC.

Step 1: Register with statutory authorities

Before your first payroll run, get a PAN and TAN from the income tax department for tax payments. Register with EPFO (mandatory for 20+ employees) and ESIC (mandatory for 10+ employees) to cover provident fund and state insurance obligations.

Also register under your state's Shops and Establishments Act and for professional tax in every state where your employees work. Companies using an EOR skip this entirely, as the EOR handles all registrations on their behalf.

Step 2: Collect employee data

Gather each employee's PAN, Aadhaar, UAN for provident fund, bank account details, and income tax regime declaration. Track attendance data and leave records monthly since these directly determine each employee's gross pay and deductions.

Step 3: Calculate gross salary

Add basic salary, house rent allowance, dearness allowance, special allowances, and any bonuses. Under the 2025 Labor Codes, basic pay plus dearness allowance must be at least 50% of total CTC. Get this wrong and EPF and gratuity calculations are off too.

Step 4: Apply statutory deductions

Deduct EPF at 12% of basic plus DA, ESI at 0.75% for employees earning under Rs. 21,000/month, TDS based on the employee's chosen tax regime, and professional tax per state. This gives you the employee's net pay.

Step 5: Disburse salaries

Transfer net pay to employee bank accounts by the 7th of each month. This deadline is mandatory under the Code on Wages. Generate payslips through your payroll software showing every earning, deduction, and employer contribution.

Step 6: File compliance returns

Deposit TDS with the income tax department by the 7th. Remit EPF and ESI contributions to relevant authorities by the 15th. File Form 24Q quarterly and issue Form 16 annually by June 15. Maintain fully digitized payroll records for seven years under the 2025 Labor Codes.

For a more detailed walkthrough of each stage, our guide on the Indian payroll process in 8 steps covers attendance tracking, approval flows, and record-keeping requirements in full.

Let's break down what goes into that salary calculation.

What are the key salary components in India payroll?[toc=Key Salary Components]

Every Indian salary is built on the CTC model. Cost to Company is the total your company spends per employee, not just what they take home. Here is what is inside it.

The number that matters most for compliance is basic salary. EPF contributions, gratuity provisions, and the 50% wage rule all run off that single figure. Get it wrong, and every downstream calculation is off.

Use our free CTC to in-hand salary calculator to see the exact breakdown for any salary level.

Now let's look at what gets deducted from gross salary every month.

What are the statutory payroll deductions in India?[toc=Statutory Deductions]

Five deductions come out of every employee's gross salary before they see a rupee. Miss any of them and you are facing penalties from multiple government authorities simultaneously.

EPF is mandatory once you hit 20 employees. ESI kicks in at 10 employees if any earn under Rs. 21,000/month. Professional tax does not apply in every state. Delhi and Haryana do not charge it at all.

Employer-side statutory contributions add roughly 16% to 20% on top of basic salary. Factor this into your India payroll budget before your first hire.

For a detailed breakdown of how each deduction is calculated and when it applies, read our guide on how payroll deductions work in India.

Once you know what gets deducted, the next question is how income tax itself gets calculated. In India, employees choose between two different tax regimes and that choice changes your TDS calculation every month.

How do you calculate payroll in India? Step-by-Step Process[toc=Calculate Payroll in India]

The formula is simple. The execution is where most global companies get tripped up.

Net Pay = Gross Salary minus Total Deductions

Here is how that plays out in five steps every month.

Step 1: Pull attendance data and employee details

Collect each employee's attendance data, leave records, salary structure, and income tax regime declaration for the month. Missing or outdated employee data is the leading cause of payroll errors in Indian payroll systems.

Step 2: Calculate gross salary

Add basic salary, HRA, dearness allowance, special allowances, and any bonuses. Under the 2025 Labor Codes, basic plus DA must be at least 50% of total CTC. Get this wrong and EPF and gratuity calculations are off too.

Step 3: Apply statutory deductions

Deduct EPF at 12% of basic plus DA, ESI at 0.75% for employees earning under Rs. 21,000/month, TDS based on the employee's chosen tax regime, and professional tax per state. This gives you the employee's net pay.

Step 4: Calculate and deduct TDS

Estimate the employee's annual taxable income, apply the correct income tax slab rates plus 4% health and education cess, then divide by 12 for the monthly TDS amount. This changes depending on whether the employee chose the old or new tax regime.

Step 5: Arrive at net pay

Subtract any voluntary deductions like NPS or loan repayments. What remains is what hits the employee's bank account.

Use our free Employee Cost Calculator for exact monthly cost breakdowns by role and seniority.

The TDS step above depends entirely on which tax regime the employee chooses. Here is how the two options compare.

What is the difference between old and new tax regimes?[toc=Old vs. New Tax Regimes]

India offers two income tax structures. Every employee chooses one each financial year, and your payroll system must calculate TDS accordingly.

The new regime is the default. It has lower slab rates but allows almost no deductions. Income up to Rs. 12.75 lakh (~$14,000) is effectively tax-free for salaried employees after the Rs. 75,000 standard deduction and Section 87A rebate.

The old regime has higher rates but lets employees claim HRA, Section 80C (up to Rs. 1.5 lakh), home loan interest, and medical insurance deductions. It works better for employees with heavy tax-saving investments.

A 4% health and education cess applies on top of income tax under both regimes.

Most employees now choose the new regime for its simplicity. Your payroll software must support both since employees can switch each year. HR teams collect regime declarations at the start of each financial year and adjust TDS accordingly.

The Income Tax Act 2025, effective April 1, 2026, keeps these slab rates but introduces revised Form 24Q, Form 16 formats, and new tax year terminology. Make sure your payroll system is updated before April.

Beyond income tax, Indian statutory laws require employers to provide mandatory benefits. Here is what they include.

What is the minimum wage in India?[toc=Minimum Wage in India]

India does not have a single national minimum wage. The central government sets a National Floor Level Minimum Wage that no state can go below, and each state sets its own rates on top of that.

The current national floor wage is Rs. 178 per day (~$2.16). In practice, state rates are much higher. Delhi's minimum wage for unskilled workers runs around Rs. 17,494/month (~$192), while skilled workers in metro cities earn mandated minimums well above that.

Minimum wage rates also vary by industry, skill category, and occupation within each state. A software developer in Bangalore, a factory worker in Tamil Nadu, and a support executive in Hyderabad all fall under different state minimum wage schedules.

Under the 2025 Labor Codes, the 50% basic salary rule means the wage floor also indirectly raises EPF and gratuity liabilities. Pay close to minimum wage and the mandatory contribution calculations shift significantly.

Use our Holiday and Leave Policy Calculator for state-specific wage and leave guidance.

What statutory benefits must employers provide in India?[toc=Statutory Benefits in India]

Beyond monthly salary, Indian statutory laws require employers to provide these mandatory benefits. Non-compliance triggers penalties under relevant regulations.

1. Gratuity. Paid after five years of continuous service for permanent employees, or one year for fixed-term employees under the 2025 Labor Codes. Companies offering equity should also understand vesting periods and how they work for comprehensive compensation planning.
   Estimate amounts with our gratuity calculator.
2. Maternity leave. 26 weeks paid leave for the first two children. 12 weeks for the third child, adoptive mothers, and commissioning mothers. Parental leave for fathers isn't mandated nationally but most private sector companies offer 7-15 days.
3. Statutory bonus. 8.33% minimum annual bonus for eligible workers earning up to ₹21,000/month under the Payment of Bonus Act. Applies to establishments with 20+ employees.
4. Leave entitlements. Annual leave (15-18 days), sick leave (12 days), and public holidays (10-15 days) vary by state. Define these in employment contracts based on the employee's work location.
   Read more: Understanding Leave Policy Laws and Holidays in India
5. Full & final settlement. Full and final settlement of wages owed at separation is required within two working days. Other dues like gratuity and leave encashment must follow as soon as practicable.
   Read more: Severance Pay in India | Comprehensive Guide
6. Health insurance. ESI covers employees earning under ₹21,000/month. For higher earners, group health insurance isn't legally required but directly drives employee satisfaction and retention.

Additional 2026 Benefits

Women can now work night shifts with consent and mandatory safety measures. All employees over 40 years get free annual health checkups. Gig and platform workers receive social security coverage for the first time.

For comprehensive coverage of employee benefits in India, including statutory and voluntary benefits, our complete guide explains costs and requirements.

Meeting these filing deadlines is critical to avoid penalties and maintain compliance.

What are the critical payroll deadlines in India?[toc=Payroll Deadlines in India]

India payroll runs on hard government deadlines. Miss one and penalties start accruing automatically. No grace period, no warning letter.

A practical tip: process TDS by the 5th and EPF by the 13th. That two-day buffer stops bank delays from becoming penalties.

One missed date can cost more than months of payroll service fees. That is why most global companies either build a dedicated local compliance team or hand it to a payroll partner who already knows India cold.

How do you stay compliant with India payroll laws?[toc=Payroll Compliance]

Payroll compliance in India requires employers to track central laws, state-specific regulations, and frequent updates all at once. Here is what that looks like in practice.

• Enforce the 50% wage rule, since non-compliant salary structures trigger retrospective PF dues during inspections.
• Digitize all records as the 2025 Labor Codes mandate digital records for employee data, attendance data, wages, payslips, and statutory contributions.
• Track state-level variations for minimum wage, professional tax, leave entitlements, and LWF rules that differ across every state.
• Update systems for Income Tax Act 2025, since your payroll software needs revised Form 24Q, Form 16 formats, and the new tax year terminology before April 1, 2026.
• Reconcile quarterly by matching TDS deposits against filings and verifying EPF and ESI challans against actual deductions to catch errors before they compound.
• Issue proper employment contracts to every employee specifying wages, leave policies, notice periods, and applicable statutory benefits.

Even with all this in place, most foreign companies find managing India payroll overwhelming. Here is why.

What are the biggest payroll challenges for global companies?[toc=India Payroll Challenges]

From our experience helping 300+ global companies pay employees in India, the same issues come up every time.

• Worker misclassification is the costliest error, as Indian courts side with workers and classifying employees as contractors triggers retroactive EPF, ESI, gratuity, back wages, and heavy fines.
• Incompatible payroll software is a constant problem because Western systems do not handle India's EPF splits, dual tax regimes, state-wise professional tax, or the 50% wage rule.
• Frequent regulatory changes create compliance gaps, since the 2025 Labor Codes and Income Tax Act 2025 landed in the same cycle and companies without local expertise miss critical updates.
• Multi-state complexity means employees across three cities equals three compliance frameworks to manage simultaneously for professional tax, minimum wage, and leave entitlements.

These challenges are why most global companies choose a specialized partner over building international payroll in-house. Here are your options.

What are your options for managing payroll in India?[toc=Options to Pay employees in India]

You do not need a local entity to pay employees in India. There are four ways US companies legally pay Indian employees, and they work differently depending on your setup.

1. Employer of Record (Recommended)

You send USD to the EOR. They convert it to INR, deduct EPF, ESI, TDS, and professional tax, and deposit net salary directly into your employee's account by the 7th. No India entity needed, no compliance work on your end. Wisemonk EOR converts at under 0.6% FX markup, most US banks charge 3% to 5%.

2. NEFT, RTGS, or IMPS (only if you have an India entity)

These are India's domestic payment rails. They move money inside India, not from the US, and require a funded Indian bank account. They handle money movement only. Statutory filings for EPF, ESI, and TDS are still your responsibility.

3. Global payroll and fintech platforms

Platforms like Wise or Xflow convert your USD to INR and route it to employee accounts via local rails. They handle money movement, not statutory compliance. You still need a payroll partner for EPF, ESI, and TDS filings.

4. SWIFT wire transfer

Your US bank wires USD to an Indian entity or payroll provider who converts and pays via NEFT or RTGS. Takes 2 to 5 days and costs $25 to $50 per wire plus a 3% to 5% FX markup. It works, just the most expensive way to do it.

What does not work: paying in USD directly violates FEMA. PayPal and Venmo create tax documentation gaps that can come back on both you and your employee.

Read our complete guide on how to pay employees in India for a full breakdown of each method including FX cost comparisons.

To understand how an EOR simplifies compliance and payroll processing without a local entity, visit Employer of Record in India: A Complete Guide.

For most global companies hiring their first employees in India, an EOR is the fastest path. One invoice, compliant payroll, no entity required.

How much does payroll cost in India?[toc=India Payroll Costs]

Total employer cost in India goes beyond monthly salary. Statutory contributions alone add 15% to 20% on top of basic salary.

Employer-side statutory costs

• EPF: 12% of basic salary plus DA.
• ESI: 3.25% of gross wages for employees earning up to Rs. 21,000/month.
• Gratuity: 4.81% of basic salary provisioned monthly.
• Statutory bonus: 8.33% minimum annually for eligible employees.
• Professional tax: up to Rs. 2,500 per year, state-specific.

Including group health insurance and leave provisioning, total CTC runs 1.25 to 1.4 times the base salary. For competitive tech roles, budget 25% to 40% above gross salary.

Payroll management costs

• Outsourcing payroll services costs $7 to $30 per employee per month, but you still need a local entity.
• EOR services range from $99 to $599 per employee per month, with Wisemonk EOR starting at $99 per employee per month.

Get your exact numbers with our free Employee Cost Calculator.

Simplify India Payroll with Wisemonk EOR[toc=Wisemonk EOR]

Wisemonk is a leading Employer of Record (EOR) trusted by 300+ international companies to hire, pay, and manage employees in India without establishing a local entity. We handle complete payroll processing including salary calculations under the 50% wage rule, statutory deductions, tax withholdings, compliance filings, and timely salary disbursements.

Managing $20M+ in annual payroll for 2,000+ employees across India, we've built systems that adapt to regulatory changes automatically and ensure zero compliance gaps.

Why US companies choose Wisemonk for India payroll:

• Automated Payroll: We calculate salaries, apply the right tax regime, generate pay slips, and deposit on time, every cycle.
• Full Compliance: EPFO, ESIC, TDS, Form 16, professional tax, and digital records, all filed automatically across states.
• Dedicated HRBP: Your team gets one point of contact for onboarding, contracts, benefits, leave, and employee queries.
• Recruitment: We source, screen, and onboard Indian talent end to end so you skip the hiring complexity.
• Contractor Payments: Compliant classification, TDS, and INR payments handled from $19/month.
• Managed Payroll: Have an entity? We run your payroll, filings, and HR operations compliantly.
• Equipment Management: We procure, ship, track, and recover devices for your India team from day one.
• GCC and Entity Setup: Company formation, registrations, and worend-to-endkforce planning when you're ready to scale.

Client review/feedback:

“I love their payroll feature, which allows me to pay my workforce easily without any errors. In just a few seconds, I can see the invoices generated for all of the payouts”

- Mithun V.
Mid-Market
Read the full review on G2 →

“Wisemonk has successfully hired high-quality candidates, which has impressed the client. The team is responsive to the client's requests and changes via Slack. The team also collaborates through a hiring tracker in Google Sheets. Wisemonk communicates via email and virtual meetings.”

- Dan Sampson
VP of Engineering, Cobu
Read the full review on Clutch →

Wisemonk provides a one-stop solution for companies looking to build and manage teams in India. Whether you're a startup or an established company, Wisemonk simplifies the complexities of Indian Payroll management, allowing you to focus on growth and innovation.

For comprehensive guidance on choosing the right EOR provider, our selection framework helps you evaluate options. We also offer insights on staffing agencies in India and hiring solutions for different business needs.

Talk to our India payroll experts to see how Wisemonk can simplify your India operations.