India Employment Compliance Guide: What Employing Someone Actually Involves

A working reference rather than a brochure. Every obligation below is one we carry for our clients, written out so you can check our arithmetic, or decide you would rather do it yourself.

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At a glance

Statutory obligations: quick reference.

What each one costs an employer, and how often it falls due. This is the one place on the site where the data is presented as a table, because here you are looking things up rather than being argued with.

Obligation	Employer cost	Filed	Detail
Provident Fund	12% of basic	Monthly	Employer share, charged on basic pay. Required on wages up to ₹25,000 a month since 17 September 2026.
Employees State Insurance	3.25% of gross	Monthly	Only where gross pay is ₹21,000 a month or below.
Professional Tax	Up to ₹2,500 / year	By state	Set by each state, so it depends on where the person works. Telangana charges ₹2,400 a year; Delhi charges none.
Tax deducted at source	Employee's own liability	By the 7th	Quarterly Form 24Q. Annual Form 16 issued to the employee.
Gratuity	15 days pay × years	On exit	Payable after five years of service. Provisioned monthly, not discovered later.
Maternity leave	26 weeks, full pay	On event	Employer funded. India provides no government subsidy for this.
Shops & Establishments	Per state	At onboarding	Required in every state, including for people working from home.

Every figure here is general information, not advice on your situation.

In detail

Each obligation, written out properly.

Thirteen entries covering what the rule is, what it costs, who it applies to, and the one thing a foreign employer usually gets wrong about it.

Provident Fund: India's compulsory retirement savings scheme, now run under the Code on Social Security, 2020. The nearest equivalents are a 401(k) in the United States or a workplace pension in the United Kingdom, except that joining is not optional.
Employees State Insurance: A government health and social security scheme providing medical, sickness, disability and maternity benefits. It applies only below a wage ceiling, which is why many foreign employers never encounter it.
Professional Tax: A state-level tax on employment income. There is no national professional tax: every state sets its own rates, slabs and filing requirements, and some do not levy it at all.
TDS and Form 16: India's income tax withholding system. The closest equivalents are PAYE in the United Kingdom and federal withholding in the United States, with a different rhythm and a different set of forms.
Gratuity: A statutory lump sum payable when an employee completes five years of continuous service. It is a real financial obligation that accrues silently and is usually discovered at the worst moment: when someone resigns.
CTC and salary structure: Cost to company is the total annual cost of employing someone, and it is not what they receive. Foreign employers routinely quote a CTC figure believing it is a salary, and Indian candidates read it correctly as something else.
Leave entitlements: Leave in India comes from two places: the central labour codes and each state’s own Shops and Establishments Act. This page covers every type an employee can take, what each one costs, and how to write an earned leave policy.
Employment contracts: An Indian appointment letter is not a home-country template with the country name changed. Several clauses behave differently under Indian law, and one of them is the reason technology companies care about this page.
FEMA and paying from abroad: The Foreign Exchange Management Act governs every foreign exchange flow into India, including paying people who work there. This is the mechanism that quietly makes informal arrangements unworkable.
Shops and Establishments: A mandatory state-level registration for commercial establishments. It is the single most commonly overlooked requirement for a foreign company employing its first person in India.
Termination and exit: Exit is the point of maximum risk in Indian employment, and the point at which every liability that has been quietly accruing becomes payable at once.
The new Labour Codes: India has consolidated twenty-nine central labour laws into four codes. They are in force, and the Central Rules under them have been notified. For an employer, most of it is administrative. One change is not.
Permanent establishment: The question a foreign company’s counsel asks first: does having people in India, even through an Employer of Record, give the company a taxable presence there? Usually not, if the team is used the way most teams are. The exceptions are predictable.

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