There are many things you will need to know before you hire in India but here are our top 3:
1. Employment in India
Employer and Employee Social Security in India
When you employ expats or residents in India, you must register and pay social security contributions. The Employee’s Provident Fund requires both employer and employee contributions, but there are also employee contributions for the Pension Scheme and Deposit Linked Insurance. Contribution amounts depend on the employee’s earnings, and are capped for the employer after a certain threshold.
A complete review of social security contribution rules can be found here.
2. Tax in India
Tax Rates in India
The tax rates in India on personal income range from 10-30% depending on the total amount of compensation. Taxes are withheld monthly from the pay check (PAYE system), based on the annual estimate of income after deductions reconciled at end of tax year.
There is a basic exemption limit (BEL) of Rs250,000 on which no tax is paid, and after that the rates are as follows:
- BEL-Rs500,000 = 10%
- 500,001-1,000,000 = 20%
- 1,000,001-10,000,000 = 30%
Expats are taxed at the same rate as residents and it may be necessary to look at tax treaties with your home country to avoid any issues of double taxation.
Corporate Tax in India
Foreign companies that establish branch offices and employ workers in India must pay a corporate tax on profits generated inside the country. The rate is a flat 40% on corporate income, with 2-3% surcharges at higher income levels.
3. Payroll in India
Social Security Registration
Your company must register and pay government social security contributions, as well as withhold employee portions from the paycheck. A Provident Fund Number and State Insurance Number must be applied for prior to initiating an Indian payroll.
13th/14th month bonus
There is no mandatory 13th or 14th month additional salary bonus in India.
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It’s going to be hard to employ someone remotely. Here’s what else you should be worried about:
The risk of non-compliance is very high, especially when employing in a new country like India
Employing in an unfamiliar country like India can be overwhelming. The burden and risk of non-compliance is all on you and your company and you need to be careful when navigating the employment and tax laws of India. The information you’re looking at may be inaccurate, outdated or in another language. The consequences of non-compliance in India are far too high to not invest time and money in thoroughly understanding the Indian jurisdiction.
Involving tax and immigration providers early is the number 1 most preferred method to manage compliance risks for companies, with 72% stating that they are focusing on outsourcing these services early on in the assignment.
There are many hidden costs that you may have overlooked
When employing in India, it is highly like that you may fail to factor in some costs involved while estimating a budget for the assignment. Usually, these costs occur during the course of employment and tend to be country-specific. They are often unpredictable and unavoidable resulting in the assignment being far more expensive than the business intended it to be. Hiring just one employee in India doesn’t justify the effort and cost it takes for a company to learn everything from scratch about employing in India.
Outsourcing services is the most preferred way for global mobility professionals to contain costs with 71% stating that they have already made outsourcing changes in an effort to maximise cost savings. Unsurprisingly, outsourcing is preferred over reducing the number of assignments/transfers or improving in-house administrative processes as a method to save costs.
These considerations are common when hiring an employee in any new country. In our years of experience employing in India we have helped our clients with several other problems specific to India. Here’re a few examples:
Other Issues Our Clients Have Encountered When Employing in India
Form 16: Salary Certificate
Tax filing is a challenge in India for both the employer and employee. The first step after the employer files the annual tax report, is that Form 16 must be given to the employee by June 15th.
This is the salary certificate that lists all information on TDS deductions from the employee’s paycheck. For the sake of convenience, some employees choose to download their Form 16 from the website of the Income Tax Department once it is ready.
Taxable Components of Salary
There are some very specific rules in India about what components of income are taxable, and our clients often have questions about what to include. Here is the basic breakdown of taxable items:
- Basic Salary: the monthly compensation paid as salary, bonuses or commissions
- City Compensatory Allowance: paid to offset the high cost of living in metro areas, the CCA is fully taxable as income to the employee
- Incentives: reimbursement of personal expenses
- Leave Encashment: amounts paid for unused leave are taxable
Notably, per diem allowances are not taxable in India as long as they are reasonable and justifiable.
Work Permits and Visas
India has specific requirements to issue work permits and visas to your staff assigned to work in India, and the primary type is the Employment or ‘E’ visa. This visa is granted for one year, or for the term of the contract in India (up to 5 years). The E Visa must be applied for from the employee’s home country, and not while already inside India.
The Employer of Record Solution
As you can see from this overview, the process of hiring even one employee in India can be a real challenge for any HR department. This is why the Shield GEO Employer of Record (EOR) solution is a cost-effective and simple way to address your payroll, tax and immigration requirements. The EOR becomes the legal employer of your worker in India, with a registered entity that is already in place and prepared to take care of your employment needs. We can help guide your initial venture employing in India, which will give you a head start in the region if you decide to expand in India.
As an added advantage for employing in India, Shield GEO has a regional hub in Australia that can easily serve your employees in India. Our team members can offer localized service, quick communication and the expertise of our regional partners to ensure that our EOR service is delivered seamlessly to support your staff assignments.
Here is a quick summary of what you can expect from your Shield GEO regional account manager:
- A single point of contact for all employee or HR issues and questions
- Assistance with meeting Indian requirements for the employment contract
- Advice on changes to relevant legislations
- Obtaining visas and work permits sponsored by our Indian EOR
- Full compliance with Indian payroll, immigration and employment laws
- Monthly payroll and employment administration
For an HR department located in the home country, the Shield GEO team in Asia becomes a local, dedicated resource to handle every aspect of your employee assignments. This allows you to focus on supporting your staff’s project and performance needs, while we take care of the multiple employment administration tasks for you.
Hiring your first employee in another country? Let us know which country and we’ll send you a guide on everything you need to know about employing there.