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Employing in India

At a glance

Employment in India

Indian employment law is heavily bureaucratic, with numerous statutory requirements with regards to contracts, termination procedures as well as employee pensions and holidays. The main distinction with regards to employee rights lies with whether the employee is considered a “workman” or otherwise under Indian employment law. As the following only aim to act as a guide in the broadest sense, it is still recommended that professional legal advice be sought when employing in India. For further reading, please refer to the Indian Ministry of Labour’s website here.

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Payroll & Tax in India

Foreign companies operating in India may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in India are: Individual income tax (IIT) for employees in India, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.

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Immigration / Work Permits in India

India offers a variety of visas for foreign nationals wishing to enter the country. Indian employment visas are available for foreign firms wishing to employ highly-skilled professionals, while ordinary clerical / secretarial workers are usually not granted such visas. Employment visas are generally valid for one year, and are renewable for a maximum of five years.

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Incorporation

There are three types of business forms available to foreign companies in India. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases it will depend on the degree of commitment a company has to India and the planned business activity.

When setting up a company in India, you have the following options:-

  • Corporation
  • Project / Branch Office
  • Liaison (Representative) Office

This article provides a general guideline for foreign businesses on entering India for business purposes. In particular, it looks at common pathways to establishing a business presence in India, generally through a corporation, branch office or liaison office. In addition, various economic, tax and regulatory factors are provided throughout as a source of useful information to assist those who will enter the Indian economy. The guide also looks at some immigration requirements such as obtaining appropriate visa status.

Data is based on the time of writing, September 2015 or closest available dates.

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GEO Solutions or DIY Employment in India?

GEO Solutions or DIY Employment

Companies entering India must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or India Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Indian entity established that can run payroll.

A DIY approach will typically take 6-9 months until there is a properly incorporated WFOE ready to run payroll and cost up to 6 figures if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Using Shield GEO Employer of Record Services in India

Payroll India
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please contact us for a quote

Notes

Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.

 
Grossed income Tax Rate (%)
0- INR 250,000 0
INR 250,001 - 500,000 10
INR 500,001 - 1,000,000 20
More than INR 1,000,001 30

*A 10% surcharge on total tax payable applies to individuals with total taxable income exceeding INR10 million.

**An education cess of 3% is also levied on taxes payable

Tax Returns Supplied

Yes

Corporate Tax Requirements

Companies are required to submit their tax returns by 31 March of the year following the tax year.

Companies must make four provisional advance payments of tax on 15 June (10%), 15 September (45%), 15 December (75%) and 15 March (1005).

Employers Social Security and statutory contributions

Employers have to contribute 12% of the employees’ monthly salary towards the Provident Fund Scheme and 4.75% to the national insurance scheme. For more details, please refer to the section on Employment.

Employees Social Security and statutory contributions

Employees have to contribute 12% of their monthly salary towards the Provident Fund Scheme and 1.75% to the national insurance scheme. For more details, please refer to the section on Employment.

Corporate Income Tax Rate

The current corporate income tax rate is 30% for resident companies and 40% for non-resident companies (such as a branch) plus a surcharge, bringing the effective tax rate up to 41.2%.

Payroll Tax

No

Sales Tax

VAT is imposed on the supply of most moveable goods and specified intangible goods in India, as well as on the supply of taxable goods and services in India. Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods  which they receive (input tax).

The registration threshold for VAT purposes is INR 500,000 in most states.

The current standard rate of VAT imposed on taxable goods and services is 12.5-15%, depending on the state with reduced rates of 1% and 5% in most states.

Withholding Tax

India imposes withholding tax (WHT) on certain classes of income earned by non-residents:-

  • Dividends: No WHT applies. However, a a dividend distribution tax of 15% may apply.
  • Royalties: 25%
  • Interest: 10% (residents), ranges from 5-40% for non-residents.
  • Technical service fee: 25%
  • Payments to non-resident contractor companies: 40% plus surcharge and cess
  • Purchase of immoveable property: 1% plus surcharge and cess
 A reduced rate may be available under an applicable Double Tax Treaty.
Other Tax
  • Net wealth tax: Payable at a rate of 1% if the taxable value of net wealth exceeds INR3 million. Assets subject to tax include residential houses, cars, yachts, boats, aircraft, urban land, jewelry, bullion, precious metals, cash in excess of INR50,000, any amount not recorded in the books of account and commercial property not used as business, office or factory premises.
  • Transactions above INR 50,000: Any sum of money in excess of INR50,000 received by an individual without consideration may be taxable subject to certain exemptions.
  • Real estate taxes
  • Transfer taxes: Levied on the purchase of any security such as a share, derivative or unit of an equity oriented fund. Ranges from 0.025% to 0.25%.
  • Central sales tax of 2% on interstate movement of goods
  • Service tax of 14% on all services
  • Central excise duty on the production or manufacture of goods in India. Generally taxed at 12.56%
  • R&D cess of 5% on the import of certain types of “technology”
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