Employer taxes and social security contributions in India 2026

A finance lead tasked with costing a first hire in Bengaluru may start by looking for India’s payroll tax rate; India has none. Instead, the employer’s statutory costs come from separate line items: provident fund and pension contributions, insurance contributions, administrative charges, state levies, and event-triggered liabilities. Income tax and, typically, professional tax are deducted from the employee’s pay, which the employer is then responsible for remitting.

To model the cost of a single Indian hire, start by separating each charge into the employer’s contribution and the employee’s deduction. Then, apply the applicable wage ceiling and add the state-specific levies based on where the employee works.

Statutory bonus, paid leave and termination payments add to employment cost too, but are priced separately as entitlements. The lines stay the same whoever is the legal employer.

Under an employer of record arrangement, the provider registers, deducts and pays as the employer and bills the cost back. Where the work is genuinely independent, an agent of record pays contractors under a separate compliance framework.

EPF is India’s mandatory retirement savings scheme, administered by the Employees’ Provident Fund Organisation (EPFO). It applies to establishments with 20 or more employees under Chapter III of the Code on Social Security 2020, and it keeps applying even if headcount later falls below 20.

Since 29 June 2026, the rules come from the EPF Scheme 2026 and the EDLI Scheme 2026, which replaced the 1952 and 1976 schemes. Guidance citing the old schemes alone may be out of date for later obligations.

The standard rate is 12% of wages from the employee and 12% from the employer. A 10% rate applies to classes of establishment the Central Government notifies separately. The employer’s 12% is split, not added to: EPFO states that 8.33% goes to the pension scheme (EPS) and the balance goes to the employee’s EPF account.

The employee’s 12% goes to EPF. The 8.33% figure comes from EPFO material published before the 2026 schemes. Use 8.33% as the EPS rate in calculations until EPFO confirms the exact figure under the Employees’ Pension Scheme 2026.

EDLI is a life-insurance scheme for EPF members that the employer funds entirely. The EDLI Scheme 2026 forbids recovering the employer’s contribution from wages and leaves the rate to a Central Government notification. The 0.5% rates for EDLI and administration are the latest EPFO operational figures, published before the new schemes. Confirm them against the post-June 2026 notification.

Membership has four rules that decide who pays:

• A new employee whose wages exceed the ceiling when membership would begin is ordinarily an “excluded employee”.
• An existing member stays a member when pay later rises above the ceiling.
• An excluded employee and the employer can make a joint written request to contribute, including on wages above the ceiling.
• An employee can make voluntary contributions above the statutory amount. The employer does not have to match them, but pays additional administration charges on the wages used.

The wage ceiling sets the maximum wage on which statutory EPF contributions are calculated by default. Gazette Notification S.O. 5109(E), published on 17 September 2026, set it at ₹25,000 a month for Chapter III of the Code, with effect from that date. It replaces ₹15,000, which had applied since September 2014. Labour Ministry released a statement that EPF and allied contributions previously restricted to ₹15,000 are now calculated on ₹25,000 or actual wages, whichever is lower.

The higher ceiling raises the cap on the EPF and pension lines. The maximum standard employer contribution rises from ₹1,800 (12% of ₹15,000) to ₹3,000 (12% of ₹25,000). The Labour Ministry’s September 2026 releases put the maximum employer EPS allocation at ₹2,083, up from ₹1,250. In practice, the change falls into three salary bands:

• At ₹15,000 a month or less, contributions are unchanged, because they were already calculated on actual wages.
• Between ₹15,000 and ₹25,000, contributions are now calculated on actual wages instead of ₹15,000.
• Above ₹25,000, contributions are calculated on ₹25,000 instead of ₹15,000.

The ceiling also changes who starts as an excluded employee. A new hire earning ₹24,000 now joins EPF as a member. Under the ₹15,000 ceiling, the same person would have been excluded at joining.

Two adjustments may change these figures. If EPFO’s implementing instructions keep the administration charge on the old ₹15,000 base, that charge is capped at ₹75 a month (0.5% of ₹15,000) instead of ₹125. And if employer and employee jointly choose to contribute on full wages of, say, ₹40,000, the employer’s 12% becomes ₹4,800, plus additional administration charges. Confirm pension eligibility before raising the EPS share above the ceiling amount.

ESI is the state health insurance and cash-benefit scheme managed by the Employees’ State Insurance Corporation (ESIC). It covers establishments with 10 or more persons, other than seasonal factories, and a notified hazardous occupation may be covered with one employee. The employer pays 3.25% of ESI wages and deducts 0.75% from the employee, a total of 4%, at rates effective from 1 July 2019 and still published as current. The employer pays both shares within 15 days of month-end.

Coverage depends on a wage threshold. The last official figure is ₹21,000 a month, or ₹25,000 for a person with a disability, set from 1 January 2017 and repeated by the Ministry in 2025. The Code began taking effect on 21 November 2025, so confirm ₹21,000 against current ESIC notifications before relying on it. Under a May 2026 notification, an employee whose pay rises above the threshold mid-period stays covered until the contribution period ends.

Foreign nationality alone gives no exemption. The EPF Scheme 2026 treats a holder of a non-Indian passport working for a covered establishment in India as an “international worker”, who must join unless an exclusion applies. Nepalese and Bhutanese nationals covered by the relevant treaties count as Indian workers.

The main exclusion is for a detached worker. To qualify, the person must meet all four conditions:

• Keep contributing to the home country’s social security system
• Come from a country with an applicable social security agreement (SSA) with India
• Meet the agreement’s conditions and permitted detachment period
• Hold a certificate of coverage or equivalent evidence

A second exclusion applies to workers covered by a bilateral comprehensive economic agreement signed before 1 October 2008 that expressly exempts them from host-country contributions.

The contribution base for international workers is unsettled. Before June 2026, EPFO guidance commonly applied contributions to full wages with no ceiling. The 2026 scheme applies the notified ceiling generally while keeping international workers as mandatory members. Until EPFO clarifies the point, do not assume contributions are calculated on the employee’s full salary.

Professional tax is a state or local tax on employment, permitted by Article 276 of the Constitution. The constitutional cap limits the total to ₹2,500 per person per year. The employee normally bears it, and the employer deducts and pays it over, although some states also require employer registration or enrolment. Rates, salary bands, exemptions and payment dates vary by state and sometimes by municipality. Punjab, for example, calls its professional tax the State Development Tax and levies it at ₹200 a month on salaried persons, with exemptions including senior citizens. Other states use different names, bands and rates.

Each state also sets its own Labour Welfare Fund contributions: each law fixes the employee and employer shares, whether remittance is monthly, half-yearly or annual, who counts as covered, and any wage or managerial exclusions. The employer’s share is a cost. The employee’s share is a deduction. Check the current state board notification for each work location rather than applying one India-wide rate.

Three liabilities arise from events rather than from each month’s payroll, and none has a statutory monthly rate.

• Gratuity applies to factories, mines, plantations and ports, and to shops and establishments that employed at least 10 employees on any day in the preceding 12 months. The benefit is generally 15 days’ wages per completed year of service. Employers sometimes use a percentage such as 4.81% as an accounting accrual, but it is a pricing assumption, not a statutory contribution.
• Maternity benefit is paid at the average daily wage, generally for up to 26 weeks, or 12 weeks where the employee has two or more surviving children.
• Employees’ compensation covers injury or death in employment where ESI does not apply, and employers commonly insure it.

From 1 April 2026, section 392 of the Income-tax Act 2025 requires whoever pays salary to deduct tax at the time of payment. The deduction uses the average income tax rate on the employee’s estimated salary income for the tax year. This tax deducted at source (TDS) becomes an employer cost where the employer agrees to bear or gross up the employee’s tax.

Form 138 replaces Form 24Q as the quarterly salary TDS statement, and Form 130 replaces Form 16 as the employee’s annual certificate, both from Tax Year 2026-27. Periods up to 31 March 2026 stay under the old Act and forms.

Five steps give the employer’s monthly statutory cost at any salary, once EPF membership is confirmed. If the person is an excluded employee, skip steps 1 and 2 entirely. A new joiner already earning above ₹25,000 is ordinarily an excluded employee, so the EPF lines start at nil.

• Confirm the EPF wage, then take the lower of that wage and ₹25,000 as the contribution base
• Multiply the contribution base by 12% for EPF and EPS, then by 0.5% each for EDLI and administration
• Check whether ESI wages fall within the threshold. If they do, add 3.25% of ESI wages
• Add the employer’s state LWF share for the work location
• Note gratuity accrual, maternity and injury liabilities separately as contingent costs

The two examples below use illustrative salaries, and the cost calculator gives a fuller estimate for a specific role. They assume EPF wages equal salary, the 12% rate, and no joint higher-wage option.

The calendar covers contribution and tax remittances. The employer pays salary itself on the dates that India payroll rules set, so a monthly payroll calendar needs both sets of dates.

The principal employer is responsible for EPF contributions for workers engaged through a contractor whose establishment is not separately registered. A client whose local contractor supplies its India workers should confirm that the contractor’s establishment is separately registered with EPFO.

An India cost template set up before 17 September 2026 understates employer EPF for every salary above ₹15,000, because it still calculates on the old ceiling. Before an offer is signed, confirm five inputs:

• The EPF contribution base, now the lower of wages and ₹25,000
• Whether the person is already an EPF member
• ESI status against the ₹21,000 threshold
• The work state, for professional tax and LWF
• Whether the administration charge follows the new base

Put the same questions to any provider, Boundless, a Payoneer company, included: which EPF ceiling it applies, how it treats international workers, which state schedules it uses and how it handles salary tax withholding under the 2025 Act. The first step is to recalculate last quarter’s India model on ₹25,000, before the next payroll cycle shows the difference.