#india payroll

[employer-of-record-india]

How Do You Run a Compliant Payroll Cycle in India: Deductions, Filings, and Deadlines?

India runs on a single monthly payroll cycle. Salaries must reach employee accounts by the 7th of each month, and most statutory filings follow inside the same window. There is no biweekly option, and every employer processes payroll once a month regardless of size.

The cycle starts with registrations. Before the first run, an employer needs a PAN and TAN with the income tax department, plus EPFO and ESIC enrollment where headcount thresholds apply. The full sequence, from attendance capture to filing, is mapped in this complete India payroll guide. Companies without a local entity skip these registrations by hiring through an Employer of Record that already holds them across all 28 states.

Four deductions come out of gross salary. Provident Fund runs at 12 percent of basic plus dearness allowance on both sides. Employee State Insurance applies at 0.75 percent for employees earning under 21,000 rupees a month, with the employer adding 3.25 percent. Tax Deducted at Source follows the employee's income tax slab, and a statutory bonus of at least 8.33 percent applies to eligible workers. Professional tax is a small state level charge that does not apply everywhere, with Delhi and Haryana charging nothing.

One structural rule reshaped payroll. Under the new Labour Codes in force since November 2025, basic salary plus dearness allowance must be at least 50 percent of total Cost to Company. Because Provident Fund and gratuity both calculate off basic pay, this single rule raised statutory costs. Any structure built to keep basic artificially low is now non-compliant and exposed to retrospective dues during inspections. The salary calculator shows how a given CTC splits into take-home under the current rules.

The deadlines are hard. TDS and salaries are due by the 7th, and Provident Fund and ESI by the 15th. A practical buffer helps: process TDS by the 5th and Provident Fund by the 13th so a bank delay never becomes a penalty. The full compliance calendar and the six deductions are detailed in this guide to paying employees in India.

The forms changed too. The Income Tax Act 2025 took effect on April 1, 2026. Salary TDS moved from Section 192 to Section 392(1), the quarterly return is now Form 138 instead of Form 24Q, and the annual certificate is Form 130 instead of Form 16. A payroll system still using old section numbers will fail validation on the income tax portal.

The complexity that trips up global employers is the state layer, where minimum wage, professional tax, and leave entitlements all vary. That is why once a team crosses ten people, a statutory compliance checklist becomes essential, and why many companies compare payroll outsourcing options rather than build the function in-house.

Companies hiring in India without an entity often use an Employer of Record to carry the entire cycle. Wisemonk EOR handles the registrations, converts incoming currency to rupees, applies every deduction, disburses net pay by the 7th, and files each return. To model the true all-in monthly cost of a hire, the employee cost calculator produces the full breakdown. The takeaway is that payroll in India is procedural, not mysterious. It rewards a clean salary structure, an updated system, and respect for the 7th and the 15th.

[employer-of-record-india]

How Much Does an Employer of Record Cost in India Compared to Global Platforms?

An India-native EOR typically starts around $99 to $399 per employee per month, while global all-in-one platforms usually run $499 to $699 for the same India hire. For India-only hiring, the India-focused providers are almost always the lowest total-cost option, and that gap is mostly branding, not better compliance.

The headline fee is only part of the story, though. What sits underneath it, and what's quietly added on top, often matters more than the number on the pricing page.

Why Is an India-Native EOR Cheaper for India?

Because it owns its Indian entity and runs everything locally, rather than routing your team through a third-party partner network. That removes a layer of margin and a layer of compliance distance.

Global platforms price India as one market among fifty, so their India fee carries the overhead of breadth you don't need if you're only hiring in India. The full breakdown of what an EOR costs in India walks through the fee tiers, and you can see one India-native EOR and AOR pricing structure directly, starting at $99 per employee.

What Should You Watch Beyond the Monthly Fee?

The fee is rarely the largest line on the invoice. The full cost is salary, plus statutory employer contributions, plus the fee, plus any add-ons. Two things commonly hide:

FX markup is the big one. A 2 to 10 percent spread on every conversion adds up fast and rarely shows as a line item, where India-native providers often run closer to 1 percent or below. The other is the pricing model itself: a flat per-employee fee beats a percentage-of-salary model for most mid-to-senior roles, since the percentage climbs every time you give a raise. The PF, ESI, and gratuity load that stacks on top of salary is the same regardless of provider, so it's the fee model and FX that actually separate quotes. The EOR service page lays out how those tiers work in the India market.

How Does This Compare to Running Your Own Entity?

For early hires, the EOR wins clearly. An Indian entity runs into upfront setup costs plus annual maintenance, audit, and compliance overhead before anyone starts. The no-entity payroll route avoids all of that.

The math flips once the team is large and permanent, usually past 30 to 50 long-term hires in one location. If you already have an Indian entity and only need HR support, a PEO arrangement is the cheaper fit, and the PEO vs EOR comparison covers which model maps to which stage.

Does the City or Country Change the Cost?

The fee model is the same wherever you hire from, but the salary it sits on top of shifts by Indian city. Bengaluru and Hyderabad run 20 to 40 percent higher than smaller cities for the same role, and since statutory contributions are a percentage of salary, that flows straight into your total. A Canadian startup setting up India payroll maps the same per-employee fee into its home currency.

What's the All-In Number to Budget?

Plan for the employee's gross salary, plus roughly 15 to 20 percent in employer statutory contributions, plus the EOR fee, plus FX. For most India tech roles through a lean EOR, all-in employer cost lands around 110 to 125 percent of gross salary. The full hiring-cost picture walks through how those pieces combine.

The short version: compare on total cost, not the headline fee. For India-only hiring, an owned-entity India-native EOR is usually the cheapest route once FX, add-ons, and the pricing model are accounted for, and far cheaper than a global platform charging for breadth you won't use.

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Is It Legal for a Foreign Company to Pay Indian Employees in USD?

No. Paying a full-time Indian employee directly in USD is not compliant. Under India's Foreign Exchange Management Act, salaries for employees must be paid in Indian rupees into an Indian bank account, regardless of what the employment contract states. Sending USD straight to an employee's Indian account can trigger penalties from the Reserve Bank of India. The rule is spelled out in this guide to paying employees in India from the US.

One of the clearest lines in Indian payroll

Indian law requires every employee's salary to land in an Indian bank account, in INR, by the 7th of each month. FEMA governs all cross-border currency movement, and direct USD-to-INR-account payments fall outside its framework for employees. The contract can be denominated in USD, but the actual disbursement to the employee has to be in rupees.

Employee versus contractor

The distinction that trips people up is employee versus contractor. Independent contractors in India can receive foreign currency payments, because they are self-employed and handle their own tax and remittance compliance. Full-time employees cannot. So the same USD payment that is fine for a freelancer is non-compliant for an employee. The boundary between the two is detailed in this guide to who counts as an independent contractor under Indian law.

How a company pays "in dollars" in practice

It does not pay the employee in dollars. It sends USD to an Employer of Record or a registered payment provider, which converts to INR and deposits the net salary into the employee's Indian account, after deducting Provident Fund, tax at source, ESI, and professional tax. The company funds in its home currency; the employee receives compliant rupee salary. The mechanics are laid out in the employer of record explainer.

What explicitly does not work

Paying USD directly to an Indian bank account violates FEMA. Consumer transfer apps like PayPal or Venmo are not compliant for salary because they create documentation gaps for income tax and TDS filings. And labeling a full-time employee a contractor to enable foreign-currency payment is a misclassification risk that can surface as backdated statutory dues. The broader compliance context sits in this overview of doing business in India.

Thinking in your home currency

For companies that want to budget in their home currency, some EORs let the employee's salary be denominated in USD, GBP, or EUR while the platform handles the FX conversion and INR disbursement transparently. The employer sees a familiar number; the employee gets compliant rupee pay. This is common when building remote teams, and the model is covered in this guide to building an offshore team in India. The same FX transparency matters when scaling an offshore development center.

The clean summary

A foreign company cannot legally pay an Indian employee in USD directly, but it can fund payroll in USD and have an EOR or registered provider convert and disburse in INR compliantly. The currency the company pays from is flexible. The currency the employee is paid in is not. Providers like Wisemonk EOR handle the USD-in, INR-out conversion along with every statutory deduction. The detail to hold onto: the contract can say USD, but the employee's bank account must see rupees.

[employer-of-record-india]

Is It Legal for a Foreign Company to Pay Indian Employees in USD?

No. A foreign company cannot legally pay an Indian full-time employee's salary in USD directly into their account. Under India's Foreign Exchange Management Act (FEMA), employee salaries must be paid in Indian rupees, into an Indian bank account, regardless of what the employment contract says.

This trips up almost every company on its first India hire, so it's worth being precise about what's actually allowed and what isn't.

Why Can't You Just Pay in USD?

Because FEMA governs how foreign currency moves into India, and employee salary payments have to settle in INR through a compliant route. Sending USD straight to an Indian employee's account falls outside that framework and can trigger penalties from the Reserve Bank of India for both you and the employee.

There's a practical reason too. Salary in foreign currency creates FX risk for the employee and complicates their own income tax filing, since their tax is assessed in rupees. The full guide to paying employees in India from the US lays out exactly why direct USD payments don't work and what the compliant routes are.

So How Does the Money Actually Get There?

You send funds in your own currency to a party that converts and pays locally. The standard route is an Employer of Record: you transfer USD, GBP, or EUR to the EOR, it converts to rupees, deducts the statutory items, and deposits net salary into the employee's account on the monthly cycle.

This is also how you handle the tax side cleanly, since the EOR withholds TDS and remits Provident Fund and ESI. The India payroll tax breakdown shows what gets deducted before the net amount lands, and you can run all of this without setting up an entity.

Is the Rule Different for Contractors?

Yes, and this is the key exception. Independent contractors can be paid in foreign currency, because they're self-employed and handle their own taxes. So a genuine contractor invoicing you from India can receive USD, subject to FEMA documentation on cross-border transfers above certain thresholds.

If you'd rather not manage that paperwork, an Agent of Record (AOR) handles contractor agreements, invoicing, and FEMA compliance for you. But the contractor route only works if the person is genuinely independent. Calling a full-time employee a "contractor" so you can pay them in USD is exactly the kind of arrangement that gets reclassified, with back contributions owed to day one.

What About the Salary Floor and Other Rules?

Whatever currency you fund payroll in, the rupee amount has to clear India's minimum wage for that role, state, and skill level. India has no single national minimum, so the state-wise minimum wage rules decide the floor, and salary must be disbursed by the 7th of each month.

The compliance checklist for hiring full-time employees covers the rest, and you can compare the EOR and AOR fees to see which fits your setup.

The short version: pay employees in INR through a compliant route, never USD into their account. You can think in dollars and fund in dollars, but what reaches an Indian employee has to be rupees, properly taxed and on time.