Resident Tax Information
All resident and non-resident employees' income will be subject to income tax.
Income tax rates applicable to employees' compensation in India are progressive in nature. For this reason, executives in India are taxed at the highest rate.
The Indian Finance Minister introduced a new tax regime in the Union Budget, 2020. With the introduction of the new income tax regime, individuals and Hindu Undivided Families (HUF) can pay lower income taxes without claiming deductions.
The following is the income tax slab rates are notified in the new tax regime vs old tax regime:
Although the new tax regime slab rates do not differentiate individuals based on age group, under the old tax regime, the basic income threshold is an exemption for
- Senior citizens with an income between the ages 60 to 80 years
- Senior citizens above 80 years with salaries between ₹ 3 lakh and ₹ 5 lakh
Social Security
The Indian social security is divided by the government into 7 areas that include:
- Healthcare and Insurance
- Life and Disability Insurance
- Food Security
- Old age and Retirement Benefits
- Maternity and Childcare Benefits
- Unemployment Insurance06 Rural job guarantee
To distribute state welfare measures in India, the Indian government uses the unique identity number (Aadhar) that every Indian possesses.
The most extensive employment-related social security programs backed by The Code On
Social Security, 2020 are
- National Pension System (NPS) and Employees' Provident Fund Organisation (EPFO) for retirement pension
- Provident fund
- Life and disability insurance
- Employees' State Insurance for unemployment and healthcare benefits, and sick pay
The National Food Security Act, 2013, which assures food security to all Indians, is funded through general taxation.
These are gratuity, healthcare, retirement, disability, childcare, and provident insurance programs governed mainly by The Code On Social Security, 2020, which are mandatory for all Indian and foreign employees working in India.
Statutory Benefits
The statutory benefits in India include retirement, healthcare, disability, childcare, gratuity, and provident insurance programs governed mainly by The Code On Social Security, 2020, most of which are mandatory for all Indian and foreign employees working in India.
Each of the compulsory employee benefits is discussed in detail below:
Employee State Insurance
Employees' State Insurance (ESI) is a health insurance fund and social security for Indian employees. As per the ESI Act 1948, the Employees' State Insurance Corporation (ESIC) administers and manages the fund.
It is mandatory for employers to enroll their employees and contribute toward the ESIC fund. Employers must ensure the following contributions for all employees earning ₹21,000 (US$280) or less per month:
3.25% ( Employer’s Contribution )+0.75% ( Employee’s Contribution ) = 4% (Total Share)
All employees registered under ESIC are entitled to
- Medical treatment for themselves and their dependents
- Unemployment benefit
- Sick pay
- Maternity benefit
In case of employment-related death or disability, ESIC provides for disablement benefits and a family pension, respectively
National Health Insurances
National Health Insurance is a health insurance fund with coverage that includes 3 days of pre-hospitalization and 15 days of post-hospitalization expenses. The national health insurance also covers 1,400 procedures and related costs, including OT expenses. The central government monitors the national health insurance under 'Ayushman Bharat Yojana.
An e-card under the National Health Insurance provides Rs. 5 lakh ($6860) of insurance coverage per family per year.
Maternity Benefits
All women employees are entitled to fully paid maternity leave of 26 weeks, as laid out under the Social Security Code, 2020.
Employees requesting maternity benefits can avail of this benefit for
- A maximum period of 8 weeks before the expected delivery date
- 18 weeks after childbirth
Pension and Retirement Benefits
There are currently two organizations that the Government of India regulates as a part of pension and retirement benefits for employees that include:
The National Pension Scheme
To qualify for a pension under the National Pension Scheme (NPS),
- The individual must have been in service for at least ten years
- The individual must be at least 58 years old to qualify for pension
- The monthly retired pension an employee receives is 50% x (last salary)
Fringe Benefits
Fringe benefits in India are considered as part of an employees' salary:
- For payroll purposes
- The basis for calculating employees' labor rights
Fringe benefits commonly provided to employees in India are
- Culture vouchers
- Reimbursement of expenses
- Housing
- Private life, health, and dental insurance
- Office equipment such as laptops/ desktops
- Superannuation contribution
- Vehicle used for work
- Meal or food vouchers
- Private pension plans
- Employees' education costs
Fringe benefits in India that are considered a part of an employee's salary include:
Subsidized transportation in all metropolitan cities
- Subsidized cafeterias
- Flexible Benefits: work from home, hybrid working models, office setup at home, flexible work timing, etc.
- Company credit cards: Corporate credit cards are commonly offered to senior management in India, especially employees who travel extensively on business
Although it is common practice in India to grant some of the benefits listed above to executives, it is also provided to employees under several other departments such as marketing and sales. This is because it is a requirement that employees are provided the benefits to performing their job efficiently while complying with the ‘special tax treatment’.
Fringe benefits are taxed as a part of the employee’s compensation in the form of income tax. The tax varies depending on the income tax brackets the employee falls under
Exempt Benefits
The exempt benefits in India (both old and new regimes) are as follows:
- Deductions under 80C
- Standard Deduction (Medical & Travel Allowance)
- HRA deduction as per section 10(13A)
- Agriculture Income
Long-term Incentives
When hiring an executive, employers should ask if the executive is classified as an employee under Indian laws.
The response will determine the payroll costs and whether the executive will be entitled to mandatory labor rights.
The mandatory long-term incentives listed in the above chart include market practice benefits such as
Private Insurance Plans
There has been an increase in employers providing private insurance plans that include
- Group Medical Insurance
- Dental Insurance Group
- Personal Accident Insurance
- Group Term Life Insurance
Business Travel Accident
Group Business Travel Accident policies an employer can provide can include
- Accidental insurance
- Travel inconvenience benefits during business trips
- Medical insurance
- Personal liability benefits
- Death benefits
A Certificate of Insurance is commonly issued to any employee traveling for each work trip, although the duration of such trip should not exceed 180 days. These policies are a must, especially for an employee traveling internationally to obtain a visa from some embassies.
Employee Income Protection Plans
Prudent introduced a short-term disability or employee income protection plan in the Indian market in October 2021. This plan provides an aggregate limit of 3 months’ pay per employee who faces the loss of pay due to defined medical contingencies leading to hospitalization.
For leaves opted due to a spouse’s illness, the monthly payment is restricted to 50% of the eligible amount. A minimum group size of 1,000 lives is required to offer this plan.
Long-term benefits such as employee stock options are offered to executives or startups.
Their compensations may be too massive to be delivered in cash or as a motivating benefit to align with its objective.
Therefore, it is common for employees in India who hold strategic management positions (such as members of the executive officers, board of directors, general managers, or high level managers) and non-employed statutory officers to be offered participation in an employee stock option plan.
Thus they are provided in the form of stocks and equity in India, which include the following:
- Employee Stock Option Scheme (ESOS)
- Employee Stock Purchase Plan (ESPP)
- Restricted Stock Units (RSU)
- Stock Appreciation Rights (SARs)
- Phantom Stocks
.svg)
