As an employer based outside India, expanding your operations by hiring local talent through an Employer of Record (EOR) or Professional Employer Organization (PEO) involves navigating the complex landscape of Indian tax laws. This guide provides an overview of the key tax implications you should be aware of when hiring in India.
Key Taxes in India for Employers and Employees
1. Corporate Income Tax (CIT)
Corporate Income Tax (CIT) applies to companies operating in India, and different tax rates apply based on the type and size of the company. Here’s a breakdown for 2025:
| Tax Rate | Applicable To |
|---|---|
| 25% | Domestic companies with turnover up to ₹400 crores |
| 30% | Domestic companies with turnover exceeding ₹400 crores |
| 15% | New domestic manufacturing companies |
| 22% | Optional reduced rate for companies not claiming exemptions |
| Additional Surcharge & Cess | Varies based on income |
2. Goods and Services Tax (GST)
GST is India’s comprehensive indirect tax levied on the supply of goods and services. Below are the key GST rates in India:
| GST Rate | Applicable To |
|---|---|
| 5% | Basic necessities, food items |
| 12% | Standard goods and services (e.g., restaurant services) |
| 18% | Most goods and services (e.g., IT services) |
| 28% | Luxury items (e.g., automobiles) |
3. Payroll Taxes
Employers in India are responsible for deducting and contributing various taxes and social security amounts from their employees’ salaries. Below is an overview of the key payroll contributions for both the employer and employee:
| Type of Contribution | Employer Rate | Employee Rate |
|---|---|---|
| Provident Fund (PF) | 12% of basic salary | 12% of basic salary |
| Employee State Insurance (ESI) | 3.25% of salary | 0.75% of salary |
| Professional Tax (PT) | Varies by state | Varies by state |
| Gratuity | 4.81% of basic salary (after 5 years of service) | N/A |
4. India Personal Income Tax Slabs for FY 2023-2024 (Old vs. New Regime)
When hiring employees in India, it’s important to understand the income tax system, especially the differences between the Old Tax Regime (with deductions) and the New Tax Regime (without deductions). These impact employee take-home pay and tax planning, which can be complex for employers to manage.
At GlobainePEO, we simplify this process for employers by managing employee payroll and ensuring full compliance with tax laws through our comprehensive EOR (Employer of Record) service.
Here’s a comparison of income tax slabs under both regimes for the financial year 2023-24:
| Income Range (INR) | Old Regime (With Deductions) | New Regime (Without Deductions) |
|---|---|---|
| Up to 2,50,000 | 0% | 0% |
| 2,50,001 – 5,00,000 | 5% | 5% |
| 5,00,001 – 7,50,000 | 20% | 10% |
| 7,50,001 – 10,00,000 | 20% | 15% |
| 10,00,001 – 12,50,000 | 30% | 20% |
| 12,50,001 – 15,00,000 | 30% | 25% |
| Above 15,00,000 | 30% | 30% |
Key Considerations for Employers:
Old Regime:
- Higher tax rates but allows employees to claim tax-saving deductions (housing rent, insurance, etc.).
- Ideal for employees with significant tax-saving investments.
New Regime:
- Lower tax rates but no major deductions, simplifying the tax process.
- Best suited for employees with fewer investments or who prefer a straightforward tax structure.
Tax Residency for Employers and Employees
Corporate Residency: A company is considered a tax resident in India if it is incorporated in India or its control and management are primarily situated in India.
- Individual Residency: Individuals who stay in India for 182 days or more in a financial year or meet certain conditions are considered tax residents.
Tax Incentives for Global Employers
India offers several tax incentives aimed at boosting foreign investment and promoting economic growth:
| Incentive Type | Description |
|---|---|
| Special Economic Zones (SEZ) Benefits | Income tax exemptions for businesses operating in SEZs |
| R&D Tax Deductions | Deductions on R&D expenses for innovation-driven companies |
| Startup Incentives | Tax exemptions for recognized startups |
| Export Promotion Schemes | Exemptions on exports and duty-free imports |
Tax Filing and Compliance Obligations
Global employers must adhere to the tax filing and compliance schedule in India. Below is a summary of key tax deadlines:
| Tax Type | Filing Requirement |
|---|---|
| Corporate Income Tax | Annual return by September 30th |
| GST | Monthly/quarterly returns based on turnover |
| Payroll Taxes | Monthly, based on the employee salary cycle |
Managing Indian Taxes with EOR/PEO Services
- Simplified Tax Compliance: EOR/PEO services manage tax filings, payroll taxes, and social security contributions, allowing you to focus on other business functions.
- Local Expertise: GlobainePEO provides expert local knowledge, ensuring your business complies with India’s tax laws and regulations.
Additional Considerations for Global Employers
| Factor | Description |
|---|---|
| Permanent Establishment (PE) Risk | Global companies operating in India may face CIT liabilities. EOR/PEO providers can mitigate PE risks by acting as the legal employer in India. |
| Double Taxation Treaties | India has a network of Double Taxation Avoidance Agreements (DTAAs) with various countries to reduce withholding tax rates and avoid double taxation. |
| Transfer Pricing | Companies with cross-border operations must ensure proper documentation of inter-company transactions to avoid penalties. |
| Cross-border Workforce | Foreign employers must understand the tax implications for cross-border employees, including how remote work may shift tax residency or social security obligations. |
Final Thoughts
Navigating India’s tax landscape is essential for global employers to ensure compliance, manage operational costs, and avoid financial penalties. EOR/PEO services can simplify tax management, enabling you to focus on your core business.
GlobainePEO – Your Trusted Partner
At GlobainePEO, we specialize in helping global businesses manage tax compliance in India. Our team of experts ensures that your company remains compliant with Indian tax regulations, letting you focus on growing your business.