§ 1
What changed with the labour codes
The Code on Wages, the Code on Social Security, the Industrial Relations Code and the Occupational Safety, Health and Working Conditions Code came into force on 21 November 2025, consolidating 29 earlier labour laws. For payroll the most visible change is the uniform definition of 'wages': if allowances excluded from wages exceed half of total remuneration, the excess is added back to wages, which increases provident fund and gratuity costs for structures built on a low basic salary.
Gratuity is now payable to fixed-term employees after one year of service rather than five, and timelines for full and final settlement have tightened. Salary structures, appointment letters and policies drafted before the codes should be reviewed.
Expatriates working in India are 'international workers' for provident fund purposes and must contribute on their full salary unless they come from a country with which India has a social security agreement and hold a certificate of coverage. Their Indian tax depends on residence status, the treaty with their home country and how home-country payments are structured.
§ 2
The law that applies
| Code on Wages, 2019 | Definition of wages, minimum wages, timely payment and deductions. |
|---|---|
| Code on Social Security, 2020 | Provident fund, employee insurance, gratuity, maternity benefit and international workers. |
| Income-tax Act, 2025 | TDS on salaries, perquisite valuation, residence and relief for foreign taxes. |
| State professional tax and labour welfare fund laws | State-level deductions and registrations. |
| Social security agreements | Exemption from Indian PF for covered expatriates. |
§ 3
Issues and how we solve them
The problems that most often hold up or complicate this work, and how we deal with each.
Issue 1
Salary structures built on a low basic salary no longer work under the wage definition.
Our approach
We model current structures against the 50% rule, show the PF and gratuity impact, and propose compliant structures that keep take-home pay as close as possible.
Issue 2
Expatriates are paid partly abroad and Indian tax is withheld only on the Indian portion.
Our approach
We collect home-country payments, apply the correct residence status and treaty position, withhold on total taxable income and handle tax equalisation calculations where the employer has a policy.
Issue 3
PF is not deducted for an expatriate because their salary is high.
Our approach
The salary ceiling does not apply to international workers. We register them, collect certificates of coverage where available, and regularise past periods if contributions were missed.
Issue 4
Full and final settlements miss the statutory deadline.
Our approach
We run exits on a fixed calendar with leave encashment, gratuity and tax computed so payment can be made within the time the codes require.
§ 4
Process and timeline
- 1
Set-up
Before first payrollRegistrations (PF, ESI, professional tax, labour welfare fund), salary structures and payroll calendar.
- 2
Monthly
MonthlyInputs, payroll run, payslips, TDS, PF, ESI and professional tax payments.
Filing: TDS by the 7th · PF and ESI by the 15th
- 3
Quarterly
QuarterlyTDS returns for salaries.
- 4
Annual
April–JulyTax certificates, investment proofs, gratuity valuation inputs, expat tax returns.
§ 5
Ongoing obligations
| Obligation | Basis | When |
|---|---|---|
| TDS on salaries | Income-tax Act, 2025 | 7th of the following month |
| Provident fund contributions and return | Code on Social Security | 15th of the following month |
| Employee insurance contributions | Code on Social Security | 15th of the following month |
| Professional tax | State laws | Monthly or as per state |
| Annual salary tax certificates | Income-tax Act, 2025 | By 15 June |
§ 6
Our scope of work
Included
- Statutory registrations
- Salary structure review under the codes
- Monthly payroll and payslips
- TDS, PF, ESI, professional tax
- Quarterly TDS returns and annual certificates
- Expatriate tax and PF
- Full and final settlements
Not included (quoted separately)
- Employment contracts and HR policies (legal drafting)
- Immigration and visa applications
§ 7
Questions
Do expatriates have to contribute to provident fund in India?
Yes, as international workers, on their full salary, unless they are from a country with a social security agreement with India and hold a certificate of coverage.
What does the 50% wage rule mean?
Under the labour codes, if excluded allowances exceed half of total remuneration, the excess is counted as wages for contributions and benefits such as provident fund and gratuity.
When is an expatriate tax resident in India?
Broadly, if they are in India for 182 days or more in the tax year, or meet the alternative tests linked to the preceding years. Residence decides whether worldwide or only Indian income is taxed.
Prepared by CA Utsav Dogra, Chartered Accountant, ICAI M. No. 542375, SU and Company · Last reviewed 4 November 2026. General information only, based on the law as it stood on that date; it is not advice for any particular case.