India Payroll

India Payroll Skill v1.0

General reference only. This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

Section 1 -- Quick Reference

Section 2 -- Income Tax Withholding (TDS on Salary)

New Tax Regime Slabs -- FY 2025-26 (Default)

Plus: 4% Health and Education Cess on total tax.

Rebate under Section 87A: Income up to INR 12,00,000 is effectively tax-free (rebate of up to INR 60,000).

Standard deduction: INR 75,000 for salaried employees (new regime).

Old Tax Regime Slabs -- FY 2025-26 (Optional, Employee Must Opt)

Plus: 4% Health and Education Cess.

Old regime deductions: Section 80C (up to 1.5L), 80D (health insurance), HRA, LTA, home loan interest (Section 24b), NPS (80CCD).

TDS Calculation Method

Surcharge (Higher Incomes)

Section 3 -- Social Security: Employee Deductions

Employees' Provident Fund (EPF)

Employee State Insurance (ESI)

Professional Tax (PT)

Section 4 -- Social Security: Employer Contributions

Employer PF Contributions

Employer ESI Contribution

Employer Total Statutory Cost (Typical)

Section 5 -- Minimum Wage and Overtime

Minimum Wages

India does NOT have a single national minimum wage. Rates are set by:

Indicative Minimum Wages (2025-26, Selected States)

National Floor Wage (Proposed under Code on Wages)

• Proposed floor: INR 178/day (~INR 4,628/month)
• Not yet notified as of May 2026
• States cannot set minimum wages below this floor once notified

Working Hours and Overtime

Section 6 -- Mandatory Benefits

Gratuity Calculation

Statutory Bonus

Section 7 -- Payslip Requirements

Indian employers MUST issue monthly payslips under the Code on Wages 2019 and various state Shops and Establishments Acts. Required elements:

CTC (Cost to Company) Structure -- Typical

Section 8 -- Filing Obligations

Key Filing Details

Penalties

Section 9 -- Common Payroll Patterns

Pattern 1: Standard Salaried Employee (CTC INR 10,00,000, New Regime)

Monthly CTC breakdown:
  Basic salary:                      INR 41,667 (50% of CTC)
  HRA:                              INR 16,667
  Special Allowance:                INR 14,583
  Employer PF (12% of Basic):       INR  5,000
  Employer ESI (if applicable):     INR      0 (gross > 21,000)
  Gratuity provision:               INR  2,003
  Medical insurance:                INR  1,250
  Monthly CTC:                      INR 83,333

Monthly deductions:
  Employee PF (12% of Basic):      -INR  5,000
  Professional Tax:                -INR    200
  TDS (new regime, ~5.5%):        -INR  3,750

Gross salary (excl employer PF/gratuity): INR 75,000
Net monthly salary:                 INR ~66,050

Pattern 2: Employee Below ESI Ceiling (Gross ≤ INR 21,000)

Gross monthly salary:               INR 18,000
  Basic + DA:                       INR  9,000
  HRA:                             INR  4,500
  Other allowances:                INR  4,500

Employee deductions:
  PF (12% of 9,000):              -INR  1,080
  ESI (0.75% of 18,000):          -INR    135
  Professional Tax:                -INR      0 (below threshold in most states)
  TDS:                             -INR      0 (below taxable threshold)
Net salary:                         INR 16,785

Employer cost:
  Gross salary:                     INR 18,000
+ Employer PF (13% of 9,000):     +INR  1,170
+ Employer ESI (3.25%):           +INR    585
+ Gratuity provision:             +INR    433
= Total employer cost:             INR ~20,188

Pattern 3: TDS Calculation (New Regime, Annual Income INR 15,00,000)

Gross salary:                       INR 15,00,000
- Standard deduction:              -INR    75,000
= Taxable income:                   INR 14,25,000

Tax calculation:
  0 -- 4,00,000:      NIL          =        0
  4,00,001 -- 8,00,000: 5%         =   20,000
  8,00,001 -- 12,00,000: 10%       =   40,000
  12,00,001 -- 14,25,000: 15%      =   33,750
  Total tax:                        INR  93,750
+ Cess 4%:                         +INR   3,750
= Total annual TDS:                 INR  97,500
  Monthly TDS:                      INR   8,125

Section 10 -- Interaction with Other Skills

India-Specific Payroll Considerations

• New Labour Codes: The four codes (Wages, Social Security, Industrial Relations, OSH) became effective November 2025. Key impact: Basic + DA must be ≥ 50% of total remuneration, increasing PF/gratuity costs.
• Dual tax regime: Default is new regime (Section 115BAC). Employee must explicitly opt for old regime. Employer MUST compute TDS per new regime if no declaration received.
• State variations: Minimum wages, Professional Tax rates, Shops & Establishments Act rules, and LWF contributions all vary by state. ALWAYS identify the employee's state of employment.
• PF wage ceiling: Statutory ceiling is INR 15,000/month for mandatory PF. Many employers contribute on actual Basic (above ceiling) voluntarily or per company policy.
• ESI expansion: Under new Labour Codes, ESI coverage expanded to all geographic areas. Previously, only notified areas were covered.
• Income Tax Act 2025: Takes effect from 1 April 2026 (FY 2026-27). Form 24Q → Form 138; Form 16 → Form 130. Same slab rates expected; procedural/section number changes.
• Arrears/bonus: When arrears or bonuses are paid, TDS must be computed on total projected annual income including such payments. Relief under Section 89 may apply.

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional before filing or acting upon.

The most up-to-date, verified version of this skill is maintained at openaccountants.com.

Source: OpenAccountants — open tax Guides for AI, reviewed by named CPAs/CAs/EAs. Quality: source-cited draft. For always-current figures and named-accountant backing, connect the OpenAccountants MCP server (openaccountants-mcp).