Payroll India: A Comprehensive Guide for HR and Global Expansion Leaders

As of April 2026, managing payroll in India means operating across one of the most layered statutory compliance environments in the Asia-Pacific region. With a workforce spanning 28 states and union territories, each with its own Professional Tax rules, minimum wage schedules, and Shops and Establishments regulations, India demands a precision-level approach that most global HR teams are not structured to handle without local specialist support.

A Payroll India provider acts as your compliance anchor in this environment. By operating as the Employer of Record, the provider manages monthly TDS filings with the Income Tax Department, Provident Fund remittances with the EPFO, ESI contributions, and state-level obligations, removing the risk of a permanent establishment trigger or a missed statutory deadline.

The EOR Model in the 2026 Indian Context

In 2026, the EOR model in India is specifically calibrated to manage the dual-regime income tax system revised under successive Finance Acts. Employees choose between the old tax regime (with deductions and exemptions) and the new default regime (lower slabs, no exemptions). An EOR ensures the correct regime is applied at source with every payroll cycle, preventing annual filing reconciliation failures.

Strategic Advantages for 2026

• TDS Accuracy: Monthly tax deductions under Section 192 of the Income Tax Act must reflect each employee’s regime election and investment declaration. An EOR handles regime tracking and TDS computation with every run.
• EPFO Compliance: Provident Fund is mandatory for establishments with 20 or more employees. The EOR files the monthly Electronic Challan cum Return covering both the 12% employer contribution and the 12% employee contribution.
• ESI Administration: For employees earning up to Rs 21,000 per month, the EOR manages ESIC registration and administers the 3.25% employer and 0.75% employee contributions covering medical, disability, and maternity benefits.
• Professional Tax Management: PT rates vary by state, capped at Rs 2,400 per year nationally. An EOR handles registration and remittance across every state where your employees are based.
• Labour Code Readiness: India’s four Labour Codes, on Wages, Industrial Relations, Social Security, and Occupational Safety, are being implemented state by state. An EOR maintains Code-compliant payroll structures from the first hire.

2026 Income Tax: New Default Regime (FY 2026-27)

India applies a progressive slab system. The new default regime carries lower rates but removes all exemptions and deductions. A standard rebate under Section 87A eliminates liability for taxable income up to Rs 7,00,000.

Statutory Contributions (2026)

2026 Work Standards and Leave Entitlements

Standard working hours are set at 48 per week under the Factories Act, with overtime at double the ordinary wage rate. The draft Code on Occupational Safety reinforces these limits.

• Earned Leave: Approximately 18 working days per year, accruing at 1 day per 20 days worked after one completed year of service.
• Sick Leave: 7 to 12 days annually depending on the applicable state Shops and Establishments Act.
• Maternity Leave: 26 weeks of fully paid leave for the first two deliveries under the Maternity Benefit (Amendment) Act 2017, reducing to 12 weeks for subsequent births.
• Paternity Leave: No central statutory entitlement; state rules and public sector policies typically grant 15 days.
• Public Holidays: 17 national and regional public holidays. Work on these days is compensated at double the standard daily rate.

Termination and Severance Governance (2026)

Termination in India operates under multiple statutory layers depending on establishment size, industry classification, and employee tenure.

• Notice Period: Typically 30 to 90 days as specified in the employment contract. Industrial establishments with 100 or more workers require government approval before retrenchment under the Industrial Disputes Act.
• Gratuity: Mandatory after 5 continuous years of service under the Payment of Gratuity Act 1972. Calculated at 15 days’ salary per completed year of service based on last drawn basic salary plus DA, capped at Rs 20,00,000.
• Retrenchment Compensation: 15 days’ average pay per completed year of continuous service, payable at the time of retrenchment for qualifying establishments.

Conclusion

Running payroll in India in 2026 means managing two tax regimes, three major social contribution schemes, and up to 28 state-level Professional Tax jurisdictions simultaneously. The ongoing transition to India’s four Labour Codes adds complexity that demands specialist on-the-ground expertise. Partnering with a global EOR ensures your India workforce stays fully compliant so you can scale without the administrative drag that derails most first-time market entries.