When a foreign company runs payroll in India, it is not running one deduction. It is running four statutory systems at once — provident fund, state insurance, professional tax and income tax withholding — each with its own threshold, rate, due date and portal. Getting any one wrong does not stay a small problem for long.
Payroll in India for a foreign company means operating EPF, ESIC, Professional Tax and TDS on salary together, in rupees, under an Indian legal employer. Each has separate thresholds and due dates, and the recent Code on Social Security has changed how the contribution base itself is calculated.
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Quick Summary
| Component | Applies when | Rate / basis |
| EPF | Establishment has 20+ employees | 12% employee + 12% employer, on wages up to ₹15,000 |
| ESIC | Establishment has 10+ employees | 0.75% employee + 3.25% employer, gross up to ₹21,000/month |
| Professional Tax | State-wise (where levied) | State slab; some states none |
| TDS on salary | All employers | As per employee’s slab; deposit by 7th of following month |
💡 TaxKitab Tip
The change that catches every foreign employer setting up in 2026 is not a rate — it is the wage-base rule. Under the Code on Social Security, 2020, basic pay must be at least 50% of total remuneration, or the PF and ESIC wage base is recalculated upward automatically. Foreign companies often import a home-country salary structure that is heavy on allowances and light on basic. In India, that structure quietly inflates your statutory contributions the moment it is assessed. Design the structure for Indian law before the first payslip, not after the first assessment. *— From our TDS & TCS Book 6. Available at taxkitab.com/books (Rs 249)*
The four systems, and what each one is
EPF — retirement. Mandatory once an establishment has 20 or more employees. Both employee and employer contribute 12% of basic plus DA, capped at the ₹15,000 wage ceiling. The employer’s 12% splits — 8.33% to the pension scheme (EPS), the rest to EPF. ECR filing is mandatory before payment, due by the 15th of the following month.
ESIC — health and insurance. Applies to establishments with 10 or more employees, covering those earning gross wages up to ₹21,000 a month. The employee contributes 0.75% and the employer 3.25% of gross wages. Once an employee’s gross crosses ₹21,000 at the start of a contribution period, ESIC stops for them.
Professional Tax — a state levy. This one surprises foreign employers because it is not central. Some states levy it, some do not, and the slabs differ. A team split across states means several PT registrations and returns, not one.
TDS on salary — income tax withholding. The employer computes tax on each employee’s salary and deposits it by the 7th of the following month. Defaults attract interest at 1.5% per month from the date the deduction was due.
The wage-ceiling numbers, verified
⚠️ These are the current figures — verify at epfindia.gov.in and esic.gov.in before relying on them, as revisions are under active discussion.
– EPF wage ceiling: ₹15,000 per month, formally notified in May 2026 under the Code on Social Security. – ESIC wage ceiling: ₹21,000 per month (₹25,000 for employees with disabilities), unchanged. – A proposed EPF ceiling of ₹25,000 and ESIC of up to ₹30,000 has been discussed but is not yet in force — the EPF revision is expected only from 1 April 2027, subject to final government timelines. Do not build your structure around a number that has not been notified.
The mistakes foreign employers make
Importing the home salary structure. A US or UK structure heavy on allowances trips the 50% basic rule and inflates contributions. The structure must be built for Indian law.
Treating Professional Tax as one registration. It is state-wise. A distributed team needs registration in each state that levies it.
Missing the deposit dates. EPF by the 15th, ESIC by the 15th, TDS by the 7th, PT by the state due date. Interest and damages accrue from the due date, not from discovery.
Assuming a payroll vendor absorbs the liability. A vendor processes payroll. Under principal-employer provisions, the liability can still land on you. Only an EOR moves the employment-layer liability off your books.
Contractor is not a shortcut
Foreign companies often try to avoid all of this by engaging people as contractors. If the relationship is genuinely contractor in nature, that is legitimate. If it functions like employment — fixed hours, exclusivity, integrated reporting — Indian authorities will reclassify it, and the backdated employer contributions, interest and penalties can reach back several years. Payroll compliance is cheaper than a reclassification.
A contractor arrangement should reflect a genuine independent relationship. Calling an employee a “contractor” does not by itself remove Indian employment, tax or social-security exposure.
How This Connects
Getting payroll right starts with the salary structure and CTC split, which the new Code on Social Security has changed, and connects to PF on allowances. If you have not yet set up an entity, our note on paying an India team before your entity exists covers the interim route.
FAQs
Do we need EPF if we have only five employees in India?
EPF is mandatory at 20 or more employees; smaller establishments may register voluntarily. ESIC, however, applies from 10 employees. Confirm your headcount against each threshold separately.
Can salary be paid in US dollars or GBP?
No. Work performed in India must be paid in rupees under an Indian legal employer.
Which states have no Professional Tax?
Several states do not levy it, and slabs differ where they do. Confirm state by state for your team’s locations before running payroll.
Does an EOR handle all of this?
Yes — an EOR runs EPF, ESIC, PT and TDS as the legal employer. If you use your own entity, the obligation is yours.
References
– Code on Social Security, 2020 (in force 21 November 2025; EPF wage-ceiling notification May 2026) – EPFO and ESIC contribution guidance – Income-tax Act — salary TDS provisions – State Professional Tax Acts.
Four systems, one payroll, no room for “later”
India payroll is not hard because any single piece is complex. It is hard because four systems run in parallel, each with its own clock, and the penalties all accrue from the due date. A foreign employer that treats it as a structured compliance exercise from the first payslip avoids almost all of the trouble that lands on those who treat it as something to tidy up later.
TaxKitab runs India payroll for foreign companies and their subsidiaries end to end — structure design, EPF, ESIC, Professional Tax, salary TDS, and the monthly filings that keep it clean.
📞 Call or WhatsApp: +91 7448200422 🔗 Global Payroll — India
Call or WhatsApp: +91 7448200422 · See our Global Payroll — India service, or our Payroll & HR Compliance service.
