India is a magnet for companies expanding into the fifth-fasting growing global economy. Its vast consumer base has growing demand among the middle classes while offering low wages, affordable accommodation and an educated workforce at the business level.
As with all countries, companies and potential employees have procedures and documentation to navigate before taking a job or onboarding staff. The law regarding immigration and work-related visas is strict and complicated and can lead to employees being stopped at the border, deported and denylisted if individuals or companies have incorrect paperwork – so care is required.
Foreigners visiting for tourism, business, medical treatment etc. (but not paid employment) require a visa. Many countries’ nationals can apply for these visas online.
Nationals who want to pay employment require a work visa (except Overseas Citizens of India, OCI, card cardholders). Companies bringing staff to India must be registered in India and comply with all employment-related paperwork. Requirements are complicated and varied, so getting it right reduces risk delays and increased costs. With over 20 years of experience with their Professional Employer Organisation (PEO) specialists and Employer of Record (EOR) platforms, Bradford Jacobs has the local knowledge and global know-how. Let us deal with the documentation while you progress to the next step.
The different types of Visas and Work Permits for India
To enter India, no matter the reason or the duration, all travellers require a visa plus a passport or internationally-recognised travel document with six months validity after returning to their home country and three blank pages for visa stamps. There are exceptions, e.g. for citizens of Bhutan, Nepal and the Maldives and OCI cardholders (Overseas Citizenship of India).
Main types of Travel Visas
Tourism ● Transit ● Medical ● Student ● Entry
There is a ‘Collective Visa’ and a ‘Landing Permit Facility’ for groups; both need to be organized by an Indian-recognised travel agent. Many countries’ nationals can apply for and complete visas online. However, others require a visit to a consulate, embassy or visa centre to verify documentation and give biometrics (fingerprints and facial). For the Tourism Visa for holidaying, visiting friends or a yoga retreat, there are:
A 30-day single entry visa or
A one-year or five years visa: For multiple entries for trips of 90 days or 180 days, depending on the nationality.
Types of Work or Work-related Visas
Business or B Visa
Employment or E Visa*
* After arrival, those staying longer than 180 days must register with a Foreigners Registration Office (FRO) or Foreigners Regional Registration Office (FRRO) within 14 days. At the same time, the Residence Permit is issued, and documentation is required.
The B Visa can be pretty complicated. Holders must be careful about the permitted activities; some examples are:
Investigating the potential or setting up a business or industrial venture
To buy or sell products
For recruitment purposes
To visit local suppliers to place orders or retain services
The visa’s duration depends on the purpose of the trip and can be from six months to five years, but generally, each stay is limited to six months.
The E Visa is the primary employment visa for employees. It is initially issued by the Ministry of Foreign Affairs through an Indian embassy or consulate (Mission) in the home country and subsequently through the Ministry of Home Affairs for the initial renewal. The Employment Visa is sponsored by an employer or legal entity in India which is not necessarily the employer.
Main categories of foreign nationals eligible to apply:
Employees are offered a job and employment contract with a salary from an Indian registered company or multi-national registered company with a branch office in India (E1)
Persons who are travelling to work with an NGO (Non-government Organization) doing volunteer work can apply for the E Visa, labelled ‘To Work with NGO’ (E3)
Contracted consultants are paid a remuneration (E1)
Self-employed professionals providing skilled services, e.g. medical, legal, technical, engineering, and accounting (permitted under the law) as independent consultants (E1)
Senior managers or specialists recruited for employment with a local or foreign-registered company whose skills are required to work on or to complete a project (E4)
Transferred employees bringing skills to an Indian-registered company from a foreign company abroad, to whom they pay a fee (E2)
Other categories of workers can be artists, sportspeople or trainers, chefs, teachers, engineers and technicians.
Note: Dependents travelling with the applicant must apply for a Dependent Visa, not the Tourist Visa. Their duration is tied to the Employment Visa.
Conditions for employment through the sponsor
They are professional, highly skilled, and qualified foreigners with a job offer and employment contract with a company registered in India as a technical expert, top-level executive or senior manager.
The employing and sponsoring company is registered in India or a foreign entity involved with a major project in India.
In any market sector, employees are offered a salary of more than US$25,000, around INR 1.9 million (€23,000). Exceptions include chefs and teachers.
The application is made in the home country or country of residence, provided the employee has been domiciled there for more than two years.
The required visa paperwork listed on the application form has been verified
Sponsoring employer or entity is visible on the visa sticker
Qualified Indian workers cannot fill the position
The type of work is not general office work, e.g. secretarial or clerical
The sponsoring company or employer is responsible for the conduct of the employee for the duration of the contract
Duration of Work Visa – E Visa for employees employed on contract:
For highly skilled and qualified professionals in the IT sector or IT software sector, the visa is granted for the term of employment (contract), or three years whichever is the shortest. Allowing multiple entries. Can be renewed annually
General E-Visa is issued for up to two years or the length of the employment contract, whichever is the shortest. Allows for multiple entries and is then renewed on a year-by-year basis
How to apply for Visas and Work Permits for India?
Individuals travelling to India for business purposes or paid employment require one of the two work visas:
The Business Visa – B Visa
The Employment Visa – E Visa
The E Visa is the primary work visa for foreign nationals wanting to pay employees. To apply, they require a confirmed job offer and employment contract from a local legal entity, i.e. the employer or company that acts as a sponsor for foreign employees and provides documentation for the Employment Visa. This permits workers to travel, enter and work there during their term of employment.
Have all documentation for reference when completing the application form, including passport
Downloading and complete the application form online.
It cannot be printed out and handwritten.
It cannot be illegible, incomplete or have errors. All questions must be answered, and N/A is not acceptable. Then, names must be signed as indicated as they appear on the passport. When printing out after completion, do so single-sided.
Ensure that all details, including the barcode, are included when printing.
The address in India must be in full, i.e. rental or hotel.
Gather all documents together that need to be submitted with the printed application form
Paperwork should be completed in English, including any bank statements
Make an appointment with the local Indian embassy/consulate to apply. This may be done online in most cases
The process takes between 4 – 5 days
Documents required with application form for E Visa
This may differ depending on the country they are applying from, the individual’s home country, or the work to be undertaken. Requirements include:
Proof of residency in home country or place of residency
A valid passport and photocopy of the main page
Two passport-style photographs for the application form (one for each page). Note: four photos are required when registering in India
Employment contract (original) in English, signed and stamped by the employer with relevant conditions of employment.
Latest curriculum vitae in English
Copies of qualifications. Proof of degree, diploma, technical certificates etc.
Evidence of previous professional experience and any letters of recommendation
‘Appointment Letter’ from the employer showing the salary, name of the company, duration of employment and job title
A photocopy of the employing company’s registration with Articles and Memorandum of Association
Employer’s Tax Liability letter in case of non-payment of taxes and proving no breach of employing foreigners quota
Justification Letter that the employee is a professional, highly qualified for the position either as a technical expert, senior or managerial executive and that the skills cannot be found in India
Note: Clarify with the Indian embassy or consulate or Visa Service Centre if any other documents are required by immigration/border control on arrival, for example, proof of address, medical insurance or a return airline ticket.
After receiving the Employment Visa and arriving in India, those staying longer than 180 days must register with a Foreigners Registration Office (FRO) or Foreigners Regional Registration Office (FRRO) within 14 days. At this time, the Residence Permit is issued, and documentation is required. Be aware that late registration can incur a fine of US$30 (€27.50). If there is no FRRO office, the District Superintendents of Police can act as a FRO.
Documents for Registration and Resident Permit
Check to see if the employer is responsible for the registration.
A completed registration form to be signed in front of an officer (three copies)
Four photographs along with passport guidelines
Valid passport with the Employment (E) Visa, plus three copies of the main bio page (with photo) and three copies of the page showing the valid E visa
Proof of address. Rental agreement or utility bill with a confirmation letter from the landlord (three copies) or similar for hotel accommodation. Changes have to be notified to the FRO/FRRO
Fee of INR 100 (€1.20, US$1.31)
Contract of employment (three copies) from employer containing details of salary, duration, location, conditions and benefits and/or an ‘Appointment Letter’ (three documents)
Letter from employer requesting the registration, on note-headed paper, signed by an appropriate company officer
Letter of undertaking that the employee accepts the employment contract (three copies)
Three photocopies of the Permanent Account Number (PAN) Card, issued by the Income Tax Department, have a unique 10-digit number. If not yet received, three copies of the application form sent for the PAN. The employer applies for this.
A Residence Permit should be issued at the same time as the registration takes place unless more investigation is needed by the FRO/FRRO.
Dealing with tax in India while being overseas can be a tricky process and pose complications that would demand expert guidance. Bradford Jacobs’ international reputation as a front-rank payroll provider is built on more than 20 years of experience. We ensure our clients comply with every aspect of taxation wherever they operate. Our combination of local knowledge and global experience provides solutions to every problem.
This is essential for foreign companies expanding into India – a huge nation of 500 million workers, where taxation laws operate across 28 states with all the complexities that entail. Additionally, India is in the process of consolidating 29 pieces of employment legislation into four codes, including a Wages Code. Bradford Jacobs’ dedicated specialists remove the burdens of worrying about tax complications while you focus on building your business in a new territory. From locating the brightest talent to running your payroll, our Professional Employer Organisation (PEO) and Employer of Record (EOR) specialists will guide you every step of the way.
Overview of Tax in India
Personal Income Tax (PIT):
Personal income is more than INR 250,000 (€3,020, US$3,313) with three further bands of 5%, 20% and 30%. The top rate applies to excess over INR one million (€12,114, US$13,280).
New Personal Tax Regime (NPTR):
Since April 1 2020, taxpayers can opt for the new scheme, which after the exempt band has six other bands up to the maximum of 30% against excess over INR 1.5 million (€18,166, US$19,920). Under this regime, taxpayers cannot make deductions against certain expenses.
Social Insurance Taxes:
Employers and employees each contribute 12% of gross salary to the EPF. Out of the employer’s contribution, around 8.3% is diverted to the pension fund. Additionally, there are contributions to the Employee State Insurance (ESI) fund – employers pay 3.25% of the gross salary paid to their employees, with 0.75% from the employee.
Corporate Income Tax (CIT):
Rates vary for domestic and foreign companies, with introductory rates supplemented by ‘effective’ rates, including surcharges for health and education. Domestic companies pay at either 25% or 30% flat rates depending on turnover. The introductory rate for foreign companies is 40%, with effective rates between 41.6% and 43.68%. The tax year runs from April 1 – March 31.
Goods and Services Tax (GST):
Changed from Value Added Tax (VAT) in 2007, the first GST standard rate of 18% applies to restaurants with alcohol licenses, cultural events and TVs. The second standard rate of 12% applies to other restaurants and some foodstuffs. For example, the reduced rate of 5% applies to medicines, sugar, tea, coffee and different categories. The highest rate of 28% includes such air conditioning and vehicles.
For companies supplying goods and services, this is assessed as Central GST by the government, as SGST by states or UTGST by union territories. All three apply where goods and services are traded between states and territories.
Withholding Tax (WHT):
Non-residents pay 20% WHT on India-sourced interest, royalties and fees paid by a resident individual or company, as per regulations laid down by the Finance Act.
Personal Income Tax in India
Married couples must file returns independently. The financial year is from April 1 until March 31, with returns due by July 31 at the same time as the unpaid taxes. Individuals required to file audited accounts can file by October 31. Salaries, fees, bonuses, commissions, personal expenses and all remuneration are liable for taxes. Individuals are tax residents if they reside in India for more than 182 days in a tax year or 60 days or more during the tax year and a total of 365 days over the previous four years; they are deemed Resident and Ordinarily Resident (ROR). If these qualifications do not apply, the individuals are Non-Resident (NR).
The tax year runs from April 1 until March 31, and returns must be filed by July 31 of the following year. October 31 is the deadline for taxpayers required to provide audited accounts.
Final tax payment is due on or before the filing date
Married couples must file independently, as joint returns are not permitted
Late filings incur fines of INR 5,000 (€60, US$66) or INR 1,000 (€12, US$13) depending on income
Remuneration from salary, fees, bonuses, commissions etc., as well as allowances, personal expenses and all other reimbursements, are liable for taxation
Foreign passport-holding employees of foreign companies are not taxed on income from the foreign employer if the individual is in India for less than 90 days in a tax year
Tax residents reside in India for more than 182 days in a tax year or 60 days or more during the tax year and a total of 365 days over the previous four years. They are classified as Resident and Ordinarily Resident (ROR). If these do not apply, the individuals are non-residents for taxation, NR
Other qualifications decide whether individuals are Resident but Not Ordinarily Resident (RNOR). This classification applies if they have been an NR in nine of the previous ten tax years or resided in India no more than 729 days during the seven years before assessing the residential status.
Employer’s Social Insurance and Statutory Contributions in India
Employers in India with more than 20 staff contribute the equivalent of 12% of their employees’ salaries to the Employee Provident Fund (EPF) capped at a monthly salary of INR 15,000 (€180, US$200). Approximately 8.3% of the 12% goes to the pension fund. Employers also contribute 3.25% of employees’ salaries to the Employee State Insurance (ESI) fund.
Planning a subsidiary entity set up in India can come with risks. The venture can be costly, time-consuming and has no guarantee of success. Non-resident companies must open a legal entity to hire staff and operate their payroll in India and generally opt for establishing a private limited liability subsidiary to gain a foothold in the world’s sixth-largest economy. There are apparent attractions for foreign companies making a move. India is predicted to attract Foreign Direct Investment (FDI) of between 120-160 billion US dollars annually by 2025. Statistics from the Department for Promotion of Industry and Internal Trade showed that the computer software and hardware industry attracted the highest FDI between April and September 2021, followed by automobiles, services, trading metallurgy and construction sectors.
It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into new territory. However, expanding overseas is a significant step, especially for companies opening a legal entity in their new territory thousands of miles from their home base. If the move fails, companies face the extra expenditure and stress of closing the business, selling property and paying off employees. The sensible alternative is to use a Professional Employer Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs to locate the finest local talent and administer your payroll in India – speedily and risk-free. Your company will be up-and-running in days rather than weeks or even months.
How to Set Up an Indian Subsidiary?
Are you interested in a subsidiary entity set up in India? The most popular choice is to open a limited liability company as a subsidiary. This operates under the 2013 Companies Act, which deals with management and administration, shares capital and securities, accounts, directors, shareholders, and meeting requirements. Foreign companies must take this step if they are planning to hire staff and operate their payroll in the country.
The Ministry of Corporate Affairs (MCA) imposes strict registration procedures for foreign companies establishing a subsidiary, including:
Filing eForm FC-1 with the Registrar of Companies (ROC), signed electronically by authorized representatives of the foreign company
The foreign company’s directors do not need to register a Director Identification Number (DIN)
The Digital Signature Certificate (DSC) of the authorized representative of the foreign parent company must be registered with the ROC
General requirements include:
Must apply for and write the unique reserved name with the ROC
Minimum of two shareholders and a maximum of 200 who cannot be employees
The Board of directors has a minimum of two individuals, at least one of whom must be an Indian resident
Directors of the subsidiary must have a DIN and digital signature before incorporation
Provide Articles and Memorandum of Association
The parent company has a minimum of 50% of the subsidiary’s share capital
There is no mandatory minimum share capital
Obtain a Certificate of Incorporation from the ROC after applying on Form INC-7
Additional documentation includes IDs of the officers and directors; proof of registered office address; occupations of directors and shareholders; Permanent Account Number (PAN) for both the company and the directors, completed on Form DIR-12
To operate payroll for the subsidiary’s staff, other procedures include:
Apply to the Income Tax Department for Form 49B to obtain the 10-character alpha-digit Tax Account Number (TAN). This sets up a tax account and enables companies to deduct tax at source for remitting to the revenue. Alternatively, the TAN can be applied for online via the National Securities Depository Limited (NSDL) website
To obtain the 11-digit TIN for the company, submit the form in duplicate to the relevant state’s Tax Identification Number (TIN) Facilitator Center.
The TIN is issued by the Commercial Tax Department of the relevant state.
Apply to the Income Tax Department for a Permanent Account Number (PAN) to submit taxes to the authorities and make other financial transactions. Individuals also have a PAN number.
Obtain the Employee State Insurance (ESI) number from the Employee State Insurance Corporation (ESIC) and the Employees Provident Fund number from the Employees Provident Fund Organization
Benefits of Setting Up an Indian Subsidiary
Specific advantages for a foreign company opening a private limited liability company in India include the entity having a separate legal identity from the parent company. The parent company’s liability is generally limited to the share capital it has invested and is not responsible for the debts or liabilities of the subsidiary. The same applies to its shareholders. The subsidiary operates under India’s Companies Act and the Income Tax Act, benefitting from the same arrangements applying to local companies.
Through its subsidiary, the parent company has the advantage of maximizing opportunities of expanding further into South Asia, the Far East and among Pacific Rim nations. And India is the ideal launch pad – the sixth-largest economy in the world and a significant target for international expansion. India is predicted to attract Foreign Direct Investment (FDI) of between 120-160 billion US dollars annually by 2025. Statistics from the Department for Promotion of Industry and Internal Trade highlighted that the computer software and hardware industry attracted the highest FDI between April and September 2021, followed by automobiles, services, metallurgy and construction sectors.
Other benefits for a subsidiary:
Easier to obtain potential benefits and incentives and enter into contracts with other Indian companies
More impact with clients and suppliers, as subsidiaries imply more permanency than branches
Employees feel more stability and job security than being with a branch, which in India faces restrictions on how they can operate.
In the broader commercial sense, opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets, in this case, the opportunities offered by Asian and Pacific Rim economies.
However, there is a more straightforward option to the risks and costs of setting up a subsidiary in India by working with Bradford Jacobs. Using a global Professional Employer Organisation (PEO) such as Bradford Jacobs means staff can be sourced, placed in their roles and be up and running within days rather than months. All the payroll, taxation and compliance difficulties are under control thanks to our Employer of Record (EOR) services.
Subsidiary Laws in India
Foreign-owned subsidiaries in India operate under the 2013 Companies Act and the Income Tax Act in the same way as locally-registered businesses. The Companies Act establishes regulations for management and administration, share capital and securities, accounts, directors, shareholders, and meeting requirements. However, the Ministry for Corporate Affairs (MCA) does impose different registration requirements for foreign-owned subsidiaries. Procedures and conditions include:
Registration and Documentation:
Apply to the Registrar of Companies to register the unique company name
Foreign-owned subsidiaries must file eForm FC-1 with the ROC, signed electronically by authorized representatives of the foreign company
Register the Digital Signature Certificate (DSC) of the authorized representative of the foreign parent company
Have a Certificate of Incorporation issued by the ROC after applying with Form INC-7
Provide Articles of Association and Memorandum of Association
Additional documentation includes IDs of the officers and directors; proof of registered office address; occupations of directors and shareholders, supplied on Form DIR-12
Permanent Account Number (PAN) for both the company and the directors
Accounts and Taxation:
There is no minimum requirement for share capital, although companies typically deposit INR 100,000 (€1,200, US$1,320)
Shareholders taxed on earnings over INR one million (€12,125, US$13,175)
Register for Goods and Services Tax (changed from Value Added Tax in July 2017) with the Income Tax Department
As a registered resident company, the subsidiary is liable for tax on its worldwide profits and is also taxed on distributed dividends
Minimum of two shareholders and a maximum of 200, non-employees
Board of directors with a minimum of two individuals, at least one of whom must be an Indian resident local director
Directors of the subsidiary must have a DIN and digital signature before incorporation (does not apply to directors of the foreign parent company) and have overall management responsibility.
The parent company has a minimum of 50% of the subsidiary’s share capital
Some industries allow 100% foreign investment, but only with approval from the Reserve Bank of India
Initial AGM required within 18 months of incorporation; subsequent meetings within six months after the end of the financial year
Entering the Indian market can offer your business various new opportunities. India’s economy has accelerated throughout the 21st century to become the sixth largest globally and a significant global player. India had nominal GDP in 2021 of 2,946 billion US dollars, equating to 3.10% of the global economy. A growth rate of 9.50% made it the world’s fastest-growing economy, while Goldman Sachs predicts that by 2035 only China and the US will have economies larger than India’s.
The Republic of India in South Asia is the world’s seventh-largest country by area, second-largest by population and the most populous democracy in the world. Its geographical location is an ideal launch pad for companies to expand further into Asia, the Far East and the Pacific Rim.
Foreign Direct Investment (FDI) is expected to reach between 120-160 billion US dollars annually by 2025. According to statistics from the Department for Promotion of Industry and Internal Trade, this proves a significant attraction for foreign companies planning expansion. The computer software and hardware industry attracted the highest FDI between April and Statistics from the Department for Promotion of Industry and Internal Trade.
Starting a business in India
Opening a business in any overseas territory brings issues and entering the Indian market is no different. Moving staff worldwide means lengthy processes to obtain visas and work permits. Once employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to answer all these questions.
India is a magnet for increasing levels of foreign investment, but companies face multiple registration procedures and an employment market where employment laws are being updated and rationalised. Where will you find manufacturers, offices and distributors? There is a simple and effective alternative. By partnering with a Professional Employer Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs, companies can plot a time-efficient and cost-effective path to locating and employing staff in India. Here we set out some of the necessary steps.
International companies entering the Indian market to hire staff and run payroll can otherwise establish a legal entity as a subsidiary. The most common route into India’s economy is to open a private limited liability company under the Companies Act (2013), which establishes rules on incorporation, shares, directors and officers, accounts and other provisions. The registration procedures include the following:
Applying to the Registrar of Companies(ROC) to register the unique company name.
eForm FC-1 must be filed with the ROC by foreign-owned subsidiaries, signed electronically by authorised representatives of the foreign company.
Registering the Digital Signature Certificate (DSC) of the authorised representative of the foreign parent company.
Having a Certificate of Incorporation issued by the ROC after applying with Form INC-7.
Providing a Memorandum of Association and Articles of Association.
Obtaining a Permanent Account Number (PAN) for both the company and the directors from the Income Tax Department.
Using the form DIR-12 to provide additional documentation: IDs of the officers and directors, proof of registered office address; occupations of directors and shareholders
Expanding your business into India
India is a big country with big ambition and with just cause. Its economy accounts for a 3.1% share of the global market economy with a GDP of US$2,946 billion. However, it is also a mixture of the very best and challenging. But with low costs, inexpensive accommodation and plenty of room for opportunity, foreign companies are attracted to its vast consumer base with growing disposable income.
In 2000 India introduced Special Economic Zones (SEZ), which offer incentives to businesses, including duty-free and tax breaks. They had exponential success in some areas, such as IT, with web-enabled services showing increased exports in IT software, electronics and circuit boards. However, September 2022 sees a re-vamp to be more inclusive with new legislation to draw in all 28 states to partner in the ‘Development of Enterprise and Service Hubs’. There will also be reforms for customs administration systems and providing state-of-the-art infrastructure to ease business in a new ’employment and economic enclave’.
Mumbai, formerly Bombay, is a metropolitan city with an eclectic mix of cultures, religions and ethnicities. It is the capital of Maharashtra and the vibrant financial centre of India. It is one of the largest ports and a principal hub for international freight. Great for start-ups and is officially the best hub for business opportunities in the March 22 budget, start-ups and new businesses benefited from increased tax incentives.
Bengaluru (formerly known as Bangalore) is known as India’s tech capital and host to many Fortune 500 businesses, but it is also famous for its nightlife and green spaces. Between 2014 and 2020, this ‘Silicon Valley and Startup Hub’ of India saw 11,000 new start-ups. Bengaluru Mission 22 showed plans to make the city “one of the best in the world” with investment in infrastructure to improve the environment, services and transport for its citizens.
Hyderabad has an ecosystem already primed for the IT business. Delhi and Bengaluru welcome expatriates, Kolkata is suitable for heavy industry, and Nagpur is home to many top manufacturing companies such as Procter and Gamble, Unilever, Colgate-Palmolive and Tata Motors.
Where to locate your office in India depends on your market, accessibility, suppliers and available talent. India is a vast country, and doing the research will take a lot of local ‘know-how’. Bradford Jacobs has that know-how, and ensuring your business office is in the best possible location for your company is our job. We are the oil to your business machine, lubricating the wheels of your expansion into India.
Some Indian Facts
Capital – New Delhi.
Population – 1.4 billion.
Regions – Geographically India has six regions: North, East, South, West, North East and Central. There are 28 states and 8 Union Territories.
Official language – There is no national language. Hindi is the official language of the central government, which recognizes 22 other official regional languages.
Economy – US$2,946 billion, ranked sixth in the world in 2021.
Leading sectors by GDP – Service 53.9%, industry 25.9%, agriculture 20.2%.
Primary exports include – Petroleum products, gems and jewellry, medicines, iron, steel, tea, coffee, spices
Leading imports include – Mineral fuels, precious and semi-precious stones, electrical machinery, nuclear reactors, organic chemicals
Main trading partners – United States, China, United Arab Emirates, Saudi Arabia, Switzerland, Hong Kong, Singapore, Iraq
Government – Democratic republic with parliamentary government, federal in structure with a unitary element
Currency – Rupee (INR)
Advantages and Challenges when entering the Indian Market
Some advantages of entering the Indian market include the following:
Economy: A developing mixed market, middle-income economy which encourages foreign investment and has privatized and deregulated many industries
Location: In south Asia, ideally placed as a stepping stone for further expansion into the Far East and among Pacific Rim nations
Wages / Salaries: Cost-effective for businesses and allied to a relatively low cost of living
Mobility: Increased urbanization attracts well-educated and qualified upwardly-mobile younger generations into the cities. India’s middle class more sizeable than that of the US
Communication: A legacy of the British Empire is that India has one of the largest English-speaking populations in the world, making it a hub for call centres and outsourcing
Growth: Various financial sources predict the economy to increase by over 9% during 2023
Some challenges of entering the Indian market include:
Structural imbalance: Unemployment among unskilled workers not trained to adapt to developing industries
Infrastructure: Inefficient distribution networks causing supply chain deficiencies
Labour: Rigid regulations deter many firms from expanding above 100 employees, though the introduction of four new employment codes aims to rationalize laws
Taxes: India has poor tax collection rates
Bureaucracy: The World Bank ranked India only 130th out of 190 for ‘ease of doing business, with significant concerns over enforcing contracts, construction permits, paying taxes and cross-border trading
Companies extending their operations into India need a complete grasp of Indian employment contracts. A successful business largely depends on its employees. By creating work contracts that include the right terms and benefits, there will be no misconception, and the perfect work-life balance can be created for your workforce.
Thanks to our Professional Employment Organisation (PEO) and Employer Of Record (EOR) services, we can provide compliant labour contracts for your employees in India, including local benefits. Our team keeps track of Indian laws and regulations daily to be duly aware of updates that can be implemented in working contracts and to ensure a smooth entry for your business into the Indian economy.
The different types of Indian Employment Contracts
There is no statutory requirement at the federal level for written contracts, although most employers enter them with their employees. However, some of India’s 28 states insist on written agreements providing information such as wages, working hours and role descriptions. There are also distinctions between the types of employees. Employees classified as ‘workmen’ are typically industry-based manual, skilled or unskilled, technical and clerical staff. ‘Non-workmen’ generally work in managerial or administrative roles earning more than INR 10,000 (€120, US$132) per month.
Main contract types include:
Open-ended Employment Contract: The most common type of arrangement, which remains in place until ended either by the employer or employee, per correct procedures under labour laws. These can cover full-time or part-time employment.
Fixed-term Employment Contract: Permitted under labour laws and used for a specific time or project. If they exceed four years, fixed-term contracts become open-ended. They provide the same benefits and entitlements as indefinite contracts.
Probation Periods: These can be included in a contract for three months, although employers can extend the trial. Probationers do not have any statutory rights.
Collective Bargaining Agreements: Agreements between employers or employers’ organizations with trade unions representing workers’ rights are enforceable under the Industrial Disputes Act. This Act will be incorporated into the new Industrial Relations Code. There are three types of collective agreements: Bipartite – where there is a voluntary agreement between employers and unions; Settlement – where a conciliation officer joins negotiations; Consent Awards – which become binding where agreement is reached pending adjudication by the authorities. Employers refusing to negotiate collective contracts contravene the terms of the Act/Code.
Indian Employment Contracts Requirements
International companies hiring employees in India must operate within a fluid mix of employment legislation, following the consolidation of 29 employment statutes into four Codes. The process began in 2019 but will likely stretch into 2023 before full implementation across the nation’s 28 states.
The four new pieces of legislation are the Social Security Code (SSC), the Industrial Relations Code (IRC), the Occupational Health, Safety and Working Conditions Code (OHS) and the Wages Code (WC).
Under the IRC, the term ‘workmen’ is replaced by the gender-neutral ‘worker’. Employees designated as ‘workmen’ are typically industry-based manual, skilled or unskilled, technical and clerical staff. ‘Non-workmen’ generally work in a managerial or administrative role earning more than INR 10,000 (€120, US$132) per month. Before introducing the new codes, the Industrial Employment Standing Orders Act (SO Act) applied to employees classified as ‘workmen’.
Understanding these issues is vital during the initial stages of hiring, onboarding and drawing up contracts for your new staff. Once Bradford Jacobs’ Professional Employer Organisation (PEO) recruitment networks have located the best talent for your company, we step in to steer you through this crucial element of onboarding.
The right advice is key to your company confidently moving into the marketplace, particularly as India poses unique problems. General points to be considered include:
Employers generally enter into written contracts, although there is no legal requirement to do so.
Some states stipulate contracts must give written details of wages, job descriptions and working hours.
Where it has been implemented, the OHS Code requires employers to give appointment letters to every employee, with such information as required by that state’s laws.
The SO Act, pending implementation of the new IR Code, stipulates that designated ‘workmen’ must receive at least 21 days’ notice of any detrimental change to their agreement, such as those affecting wages or working hours.
Outside of these provisions, working conditions for ‘non-workmen’ will be determined by the written contract between the employer and employee.
Central and state labour laws require employers to maintain records of registrations and attendances to be available for inspection by the authorities.
Employee Benefits in India are covered by legislation consolidated into four Codes, replacing 29 earlier laws and regulations. The government enacted the new Codes in 2019 and 2020, but full implementation was likely to last into 2023 at the federal level and across India’s 28 states.
The four new Codes are:
The Social Security Code – consolidating nine social security statute
The Industrial Relations Code – incorporates three statutes on industrial disputes, trade unions and industrial employment.
The Occupational Health, Safety and Working Conditions Code – replacing 13 central labour statutes
The Wages Code – rationalizing four labour laws on wages, bonuses and related payments
Foreign companies’ responsibilities reach beyond simply complying with tax, social security, and payroll regulations. Failure to comply with specific rules applying to benefits and entitlements runs the risk of fines and sanctions. Employers must have a firm grasp of what is guaranteed for their employees, which will affect the employer-employee relationship. This is where Bradford Jacobs points you in the right direction, drawing on over 20 years of experience as a Professional Employment Organisation (PEO) and Employer of Record (EOR).
What are the Compensation Laws in India?
India’s employment legislation governing compensation laws for employees is covered by the Social Security Code (SSC), the Wages Code (WC), the Industrial Relations Code (IRC) and the Occupational Health, Safety and Working Conditions (OHS). India’s government announced this new legislation in 2019 and 2020 to rationalize and consolidate 29 previous acts and statutes.
The SSC – consolidates nine social security statutes
The IRC – rationalizes three statutes on industrial disputes, trade unions and industrial employment
The OHS – replaces 13 central labour statutes
The WC – incorporates four labour laws on wages, bonuses and related payments.
Employers in India must be up to speed with changing responsibilities to their staff over benefits, compensation and minimum requirements. Minimum standards include maternity leave, sick leave, termination, severance payments, overtime, paid vacations, notice periods and probation. Do not risk paying penalties or facing sanctions for ignoring these responsibilities.
National Minimum Wage (NMW): The government introduced the non-statutory National Floor Level Minimum Wage (NFLMW) in 1996, which aimed to ensure minimum wages set by states were revised upwards. The Ministry of Labour and Employment predicted the minimum wage level to be INR 178 (€2.14, US$2.36) per day in 2022, or approximately INR 5,340 (€64, US$71) per month, plus an added allowance for the cost of living, known as Variable Dearness Allowance (VDA). Beyond this, minimum rates can be set by states, or areas and zones within the state, the sector, whether workers are skilled or unskilled, and their level of experience, training and responsibility. It is assessed there are over 1,200 rates in play.
Sick Leave and Benefit: This varies between states, but in theory, workers covered by the Employee State Insurance Act (ESIA) receive around 70% of their average daily wage, paid after a two-day wait. The cover is up to 91 days in any of two designated spells of six months. However, some states make no provisions for sick leave and benefits, while others, such as Gujarat, allow only seven days of paid sick leave per year.
Working Hours and Breaks: The Factories Act (before being incorporated under the new Wages Code) stipulates over-18s cannot work more than 48 hours a week or nine per day. A nine-hour working day, including breaks, cannot exceed ten and a half hours, with breaks generally 30 minutes or an hour after four or five hours of continuous work. However, different sectors can apply higher limits for working hours.
Overtime: Under the Factories Act, overtime should be paid twice the standard hourly rate.
Paid Vacations: Entitlement varies between states and sectors within 12 to 21 days of paid leave annually. Employees covered by the Factories Act who have worked more than 240 days in a calendar year receive one day’s rest for every 20 days worked.
Public Holidays: India has many national, government, state and city holidays and festivals. There are three national holidays, which are:
Republic Day: January 26
Independence Day: August 15
Gandhi Jayanti Day: October 2
Maternity / Paternity / Parental Leave and Benefit: The Maternity Benefit (Amendment) Act 2017 raised maternity leave to 26 weeks, eight weeks before the expected birth. The employer pays a benefit based on average daily earnings over the previous three months, but the woman must have worked for the employer for at least 80 days for the last 12 months. However, this applies only to women working in an establishment with at least ten workers in the ‘organised’ employment sector. The entitlement for women already with two or more children is 12 weeks. There is also 12 weeks’ leave for women adopting a child under three months old.
There is no statutory provision for paternity or parental leave in India. Employees of the central government receive 15 days of paternity leave before birth or within six months after, and there is a growing trend among companies in the private sector to grant paternity leave. There is no statutory provision for parental leave.
Discrimination: Employment law prohibits gender-based discrimination both during employment and recruitment. The Sexual Harassment of Women at the Workplace Act decrees that all offices, hospitals, and institutions have procedures for dealing with harassment in both the private and public sectors.
Termination / Severance / Redundancy: Before regulations are consolidated under the proposed Industrial Relations Code (IR), the termination will comply with federal and state laws and employment contracts. Until implementation of the IR Code, the Industrial Disputes Act and the Industrial Employment Act statutes will apply, among them the requirement for an employer to hold an inquiry for dismissal with cause.
Employees who are dismissed are entitled to outstanding pay instead of vacation, payment instead of notice if applicable, and a gratuity payment for more than five years of service. Severance in the case of redundancy, or retrenchment, is based on 15 days’ average pay for each year of continuous service or a year including more than six months of employment. Whether redundancy applies to an individual worker or a group of employees in establishments that have employed more than 100 workers over the previous 12 months, employers must have approval from the relevant government department. Workers must be given three months’ notice or pay instead of information in this case.
Notice Periods: Different rules apply depending on the sector and the states, but generally, employers give one month’s notice or payment in lieu, depending on contracts. Workers from factories, mines or plantations are entitled to three months of income in lieu.
Guarantees and Restrictions on Employee Benefits in India
Guaranteed mandatory benefits in India are guaranteed by various legislative measures which, during 2022 and into 2023, were consolidated into four Codes covering social security, wages, industrial relations and occupational health and safety in the workplace. The four Codes rationalized 29 former pieces of legislation. The level of guaranteed benefits can vary between India’s 28 states but include such as:
Maternity Leave: Women are guaranteed 26 weeks of leave, with eight taken before the birth, if they work in establishments employing at least ten personnel. Mothers with two children receive 12 weeks of guaranteed leave before the new pregnancy.
Sick Leave: The Employee State Insurance Act guarantees eligible workers receive 70% of their average pay for sick leave up to 91 days in any of two spells of six months. After becoming ill, there is a two-day gap before the benefit begins.
Paid Vacations: Employees are entitled to between 12 and 21 days spent holiday, varying between different states and the sector in which they work. Employees eligible under the Factories Act (to be incorporated in the new Industrial Relations Code) receive one day’s paid leave for every 20 days worked once they have worked 240 days in a calendar year.
Maternity Benefit: The employee must work in an establishment with at least ten employees. They must have worked for the same employer for at least 80 days in the 12 months before the anticipated birth date. Entitlement varies between states.
Social Security in India
India’s National Health Service does not extend to the entire population. However, the Employees’ State Insurance (ESI) Act supports registered employees during illness and maternity. The social insurance system in India is not universal and may not cover those working in the ‘unorganised’ sector, where businesses have fewer than ten employees. Indian citizens and those employed by foreign organisations have access to schemes covering such as maternity, health insurance and medical benefits. Employer contributions vary according to the number of employees.
The Ministry of Labour and Employment’s Employees Provident Fund (EPF) guarantees superannuation and family pensions, but this applies to barely 10 per cent of the workforce. Employees receive a Universal Account Number (UAN), which is portable throughout their lifetime and employment and can be transferred when they change jobs. Regulations apply to companies employing more than 20 (10 in some states) or those that voluntarily register. Employers and employees each contribute 12% of gross salary to the EPF. Of the employer’s contribution, approximately 8.3% is diverted to the pension fund. There are also contributions to the Employee State Insurance (ESI) fund – employers contribute 3.25% of the gross salary paid to the employee, with 0.75% from the employee.
Searching for and then recruiting top talent in any overseas territory is a significant operation for companies intent on building their international profile, potentially involving many obstacles, and recruiting in India is no different. India has got the sixth largest economy in the world, with a workforce of over 500 million in a population of 1.4 billion. It is a vast nation with some recruitment issues. The employment market includes millions of ‘unorganized’ workers at one end of the scale with highly-qualified and skilled, well-educated talent at the other.
Where to begin? Like the country, the challenges are enormous underlining why Bradford Jacobs’ global experience is vital for taking the smartest recruitment route into India. Bradford Jacobs’ benchmark platforms as a Professional Employer Organisation (PEO) have worldwide reach and include a total understanding of the complexities of India’s employment market. You can trust Bradford Jacobs to put the brightest talent in place for your company. It would help if you had your staff to be ‘up and running as soon as possible – and this guide highlights everything an employer needs to understand the recruitment process in India.
Recruiting in India
Recruiting in India is the first stage of making your company operational and competitive. India is a melting pot of cultures, heritage, religions, languages and attitudes towards employment. Factoring these considerations into a recruitment drive adds many levels of complexity. Some of India’s 28 states also limit the number of employees hired outside the state.
The talent pool is immense, but this does not make it any easier to find the right fit for your company. Nevertheless, mainstream recruitment follows familiar routes. Both local and international agencies head hunt executives for specific industries or sectors; graduate recruitment focuses on universities and business schools (India has over 3,000); online job boards and social media play an essential role in such a vast country.
There are many complications in moving staff into India – in addition to the complexities of obtaining work visas and permits. Knowing where to locate the finest candidates for your company’s expansion plans is vital to avoid these issues.
Once recruited, companies must consider the implications of handling payroll for their staff and deal with the revenue and social insurance authorities. Foreign companies must establish subsidiaries to undertake these tasks and follow strict registration procedures. These include:
Applying to the Income Tax Department for Form 49B to obtain a Tax Account Number (TAN) for the employee. This 10-character alpha-digit number establishes a tax account enabling companies to remit tax at source to the revenue. The TAN can be applied online via the National Securities Depository Limited (NSDL) website.
Submitting the form in duplicate to the relevant state’s Tax Identification Number (TIN) Facilitator Center to receive the 11-digit TIN for the company. The TIN comes from the Commercial Tax Department of the relevant state.
Applying to the Income Tax Department for a Permanent Account Number (PAN) for submitting taxes to the authorities and for other financial transactions. Individuals also have a PAN number.
Obtaining the Employee State Insurance (ESI) number from the Employee State Insurance Corporation (ESIC) and the Employees Provident Fund number from the Employees Provident Fund Organization
Employees’ Legal Checks in India
Indian labour law does not require employers to carry out background checks, apart from in specific sectors such as mining. Checks cannot compromise an individual’s right to privacy, so their permission should be obtained beforehand. Companies typically have a policy in place for pre-hire screening, which third parties can also conduct. Employees’ background checks can include the following:
Criminal Record Checks: Can be verified with permission.
Medical Checks: These are mandatory in the mining sector and can be requested from all candidates with their consent.
Educational Qualifications and References: It is usual for employers to check academic qualifications and references.
Privacy: All collected data, particularly medical records, must comply with Sensitive Information Rules (2011) legislation.
Required: Check that non-Indian applicant satisfy work visa requirements.
Basic Facts when Recruiting in India
Employment law in India entered a transitional phase in 2019-2020 when the government announced four new codes to consolidate 29 previous legislation sets that operated at the federal and state levels. The four new pieces of legislation are the Social Security Code (SSC), the Industrial Relations Code (IRC), the Occupational Health, Safety and Working Conditions Code (OHS) and the Wages Code (WC). Full implementation of the legislation was stretching into 2022 and likely 2023.
Previously, the Industrial Employment Standing Orders Act (SO Act) applied to employees classified as ‘workmen’, who are generally manual, skilled or unskilled, technical and clerical staff working in the industry. Under the IRC, the term ‘workmen’ is replaced by the gender-neutral ‘worker’. ‘Non-workmen’ generally work in managerial or administrative roles earning more than INR 10,000 (€120, US$132) per month.
This fluid situation in a workforce of 500 million – including tens of millions in the unregistered ‘unorganized’ employment market – complicates the hiring process. In mainstream employment, basic requirements vary between India’s 28 states.
There is no federal requirement for a written contract, although employers generally enter into them.
Some states stipulate contracts must give details of wages, job descriptions and working hours.
Where in place, the OHS Code requires employers to give appointment letters to every employee, providing such information as required by that state’s laws
The SO Act, pending implementation of the new IR Code, stipulates that designated ‘workmen’ must receive a minimum of 21 days’ notice of any detrimental change such as wages or working hours.
Outside of these provisions, working conditions for a ‘non-workman’ will be determined by the written contract between the employer and employee.
After hiring and onboarding, employers must be aware of other considerations. Minimum standards include sick leave, working hours, maternity allowances, paid vacations, termination and severance, notice periods and social insurance payments. Different rules regulate workplace discrimination. Employers must:
Apply to the Income Tax Department for Form 49B to obtain a Tax Account Number (TAN), which sets up a tax account and allows employers to remit taxes to the revenue authorities. The TAN can be applied via the National Securities Depository Limited (NSDL) website.
Submit the form in duplicate to the relevant state’s Tax Identification Number (TIN) Facilitator Center to obtain the 11-digit TIN for the company. This is issued by the Commercial Tax Department of the relevant state.
Obtain the Employee State Insurance (ESI) number from the Employee State Insurance Corporation (ESIC)
Obtain the Employees Provident Fund number from the Employees Provident Fund Organisation
Despite an economy that accelerated throughout the 21st century to become the sixth largest in the world, the Indian work culture is still predominantly hierarchical in structure and based on seniority, position and status. Building a trusting relationship is paramount, with Indians often preferring introductions from a third party they already know.
Business attitudes at the top level draw confidence from the economy’s strength. India had a nominal GDP in 2021 of 2,946 billion US dollars, 6th in the world, accounting for 3.10% of the global economy. A 9.50% growth rate in 2021 made it the world’s fastest-growing economy, and Goldman Sachs predicts that by 2035 only China and the US will have economies larger than India’s.
India’s population of over 1.4 billion includes a workforce of around 500 million, tens of millions of which are in the largely unregulated, ‘unorganized’ economy. However, a significant proportion is highly-motivated, well-educated English speakers, fueling the country’s economic growth. IT, telecommunications and software development are at the core of the change in the services sector, featuring international companies such as Intel, Meta, Google and Microsoft.
The Basics of the Indian Work Culture
India has some unique etiquette nuances that could trip up western companies and employees:
Language: English is the language of business
Punctuality: It will help not to arrange early morning meetings due to chronic traffic problems in the major cities – the same factor that may lead to your counterpart not being on time
Greetings: Handshakes are the norm for business meetings, addressing the most senior first using titles and surnames until invited to address each other by first names. The traditional ‘Namaste’ – placing the palms together accompanied by a slight bow – became a famous no-contact greeting during the pandemic.
Dress Code: Staying formal is safest with suits and ties for execs, with women ensuring skirts come below the knee, or wearing trouser suits and tops with high necklines
Negotiations: Indians are skilled negotiators and will expect targeted, focused presentations backed up by stats, charts and figures. Avoid displaying anger or frustration and put contentious issues on the shelf until later meetings.
Sealing the Deal: Be patient and flexible, as agreements can evolve even after they appear to have been concluded.
Business Cards: These are exchanged with the right hand or both together – and don’t be shy of displaying qualifications, as Indians value a good education. Present first to the most senior person
Gift Giving: Small token gifts are acceptable, maybe from the home country
Out of Hours: It is OK to conduct business over a meal, which is like being in a hotel or restaurant in the early stages of the relationship. Being invited to a home is a sign matters are progressing well.
Join Our Newsletter
Stay up to date with latest service offerings while receiving tips and strategies for making your next remote hire.