Accountancy in India

>> Employment in India

Employment taxes

Social security

The principal social security laws enacted in India are the following:

  • The Employees’ State Insurance Act,

1948 (ESI Act)

This covers factories and establishments with 10 or more employees and provides for comprehensive medical care to the employees and their families.

  • The Employees’ Provident Funds &

Miscellaneous Provisions Act, 1952

This applies to specific scheduled factories and establishments employing 20 or more employees and ensures terminal benefits, provides funds, superannuation pensions, and family pensions in case of death  during service.

  • The Employees’ Compensation Act, 1923

This requires payment of compensation to the worker or their family in cases of employment related injuries resulting in death or disability.

  • The Maternity Benefit Act, 1961

This provides for 26 weeks wages during maternity as well as paid leave in certain other related contingencies.

  • The Payment of Gratuity Act, 1972

This provides 15 days wages for each year of service to employees who  have worked for five years or more  in establishments having a minimum  of 10 workers.

Employment of foreign personnel

A foreign national qualifies as an ‘international worker’, if he/she is coming to work for an establishment in India  to which the Indian social security  regulations apply.

Remuneration received by foreign expatriates working in India generally is assessable under the head “salaries” and is deemed to be earned in India. Irrespective of the residence status of an expatriate employee, the salary paid for services rendered in India is liable to tax in India. There are no or special exemptions deductions available to foreign nationals working in India.

An international worker is required to contribute 12% of his/her salary to the social security system. Employers are required to deduct the social security contribution from the employee’s monthly pay and, after making a matching contribution of 12%, to deposit the sum with the Indian social security  authorities / fund.

Foreign nationals, including their family members who intend to stay in India for more than 180 days, must register with the Foreign Regional Registration Office (FRRO) within two weeks of arrival in India. For the purposes of registration, the individual is required to make an application in the prescribed form and be present in person at the time of registration.

Withdrawal benefits

An international worker can withdraw their accumulated balance in the provident fund in the following circumstances:

  • Retirement from service in the establishment or after attaining 58 years of age, whichever is later.
  • Retirement on account of permanent and total incapacity to work due to bodily or mental infirmity as certified by a prescribed medical officer/ registered practitioner,
  • When suffering from certain diseases detailed in the terms of the scheme

Any lump sum withdrawn by international workers from their provident fund account on retirement or otherwise, after completing five years of continuous service in a covered establishment in India or under other specified circumstances, is exempt from tax.

Latest version updated 13th October 2017

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