Employment and employee benefits in India: overview
A Q&A guide to employment and employee benefits law in India.
The Q&A gives a high level overview of the key practical issues including: employment status; background checks; permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits: Country Q&A tool.
The Q&A is part of the global guide to employment and employee benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-guide.
Scope of employment regulation
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Laws applicable to foreign nationals
All labour laws regulating employment relationships in India also apply to foreign nationals working in India. These include the Employees' Provident Fund and Miscellaneous Provisions Act 1952 (EPF Act), Employees' State Insurance Act 1948 (ESI Act), Industrial Disputes Act 1947 (ID Act), Maternity Benefit Act 1961 (MBA) and the Payment of Bonus Act 1965 (PBA).
Laws applicable to nationals working abroad
Indian labour law does not apply to Indian nationals who are employed by foreign entities abroad.
Categories of worker
Indian legislation recognises two categories of employee, workmen and non-workmen.
The ID Act defines a workman as any person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment are express or implied. Those mainly employed in a managerial or administrative capacity, or those employed in a supervisory capacity earning more than INR10,000 per month, are not included in this definition.
Sales employees (except in West Bengal) are not treated as workmen if most of their work consists of building custom or sales and promoting business. Although all sales promotion employees are excluded from the definition of workmen, certain sales employees are protected under the ID Act as a result of the Sales Promotion Employees (Condition of Service) Act 1976. These include sales employees in certain industries, including the following:
In addition, the model standing orders under the Industrial Employment (Standing Orders) Central Rules 1946, classify workmen as permanent workmen, probationers, badli workmen and temporary workmen based on the nature of their employment.
Another category of employee recognised under Indian law are contract workers who are employed through an intermediate contractor.
Entitlement to statutory employment rights
The entitlement to statutory employment rights depends on the category of employee and other factors, including remuneration, location of employee and type of industry. However, an employee who does not qualify as a workman will not receive any protection or benefit under the ID Act.
There is no such provision under Indian law.
Grants or incentives
Incentives are given for providing employment in the private sector to certain disabled persons earning a monthly wage of up to INR25,000 who are appointed on or after 1 April 2008. The incentive takes the form of a payment by the government of the employer's contribution to the statutory provident fund and the employee's state insurance for a period of three years.
In certain jurisdictions in India it is necessary to inform the employment exchanges if any vacancies arise in the employing entity. The Employment Exchanges (Compulsory Notification of Vacancies) Amendment Bill 2013 (Notification of Vacancies Bill 2013) was introduced in one of the houses of the Indian Parliament on 22 April 2013. It proposes extending the applicability of this statute to private establishments that employ ten or more persons. However, the requirement to notify any vacancies to the prescribed Employment Guidance and Promotion Centres by all employers in the private sector would continue to apply to such establishments in private sector which employs more than 24 people. However, this amendment has not yet come into force.
Certain statutes (for example, the EPF Act and the ESI Act) require that the employer make periodic filings once individuals have been employed.
There are no restrictions or prohibitions on carrying out background checks for applicants in India, after obtaining their consent. This includes requesting information regarding an applicant’s health and criminal record. In such cases, background checks can be carried out by third parties on behalf of the employer. However, the procedure for processing and storing any information relating to physical, psychological and mental health conditions or medical records and history must comply with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data and Information) Rules 2011 (Sensitive Information Rules).
Permission to work
Procedure for obtaining approval. A foreign national will generally apply for an Indian employment visa to the Indian Embassy/High Commission in his country of residence. The employment visa must be issued from the foreign national's country of origin, or from the foreign national's country of domicile provided the applicant's period of permanent residence in that particular country is more than two years. If the stay in India will be for more than 180 days, the employment visa holder must register with the Foreigners Regional Registration Offices (FRRO) or the Foreigners Registration Offices (FRO) within 14 days of arrival. The foreign national must have a valid travel document and a re-entry permit (if required under the law of the country concerned). An employment visa may be extended on a yearly basis for a maximum period of five years. An application for extension must be made within 30 to 90 days in advance. The foreign national being sponsored for an employment visa must draw a salary in excess of US$25,000 per annum (except for employment in certain sectors).
Cost. The fee for an employment visa is between US$15 and US$1,000, and is subject to periodic amendments by the government.
Time frame. It is difficult to give a precise time frame as the process is at the discretion of the Indian Embassy/High Commission concerned.
Sanctions. If the visa is not granted, the expatriate cannot travel to India. If the visa is granted for a particular purpose and the expatriate does not adhere to that purpose, the expatriate's visa will be cancelled and he will be deported. He will also attract the sanctions of imprisonment and/or fines.
Except for the employment visa, no other permits are required from an immigration perspective.
Restrictions on managers and directors
Schedule V of the Companies Act 2013 (Schedule V) requires that the following positions be filled by persons aged between 21 and 70 where they are appointed by a company:
Full time director (referred to under the Companies Act 2013 as a "whole time director").
However, central government approval is not required if a special resolution has been passed by the company approving the appointment of a director who has reached the age of 70 years.
In addition, independent directors of listed companies must be at least 21 years of age.
Generally, no specific restrictions apply provided that the foreign national is resident in India. However, where a foreign national is appointed as a whole time director or managing director:
The foreign national must still comply with the requirements of Schedule V.
The appointment must have the prior approval of the Central Government, unless he has been staying in India for a continuous period of not less than 12 months prior to the date of his appointment.
There are specific restrictions that apply to the telecom and broadcasting industry. Companies operating in these industries must ensure that the majority of their board of directors comprises of Indian nationals. Industries operating in the defence sector are required to ensure that a majority of their board of directors are resident Indians.
In addition, for security reasons, the Ministry of Home Affairs will vet the appointment of foreign nationals to the following positions:
Chief Executive Officer.
Chief Financial Officer.
Only an individual can be appointed as a director or a manager.
No person can be a director of a company if he is already a director of more than 20 companies (of these 20 companies, the director cannot hold directorship in more than ten public companies). Persons declared bankrupt or convicted of offences involving moral turpitude cannot be appointed as a director.
Regulation of the employment relationship
Written employment contract
It is not mandatory to enter into a written employment contract. However, certain industrial establishments employing the prescribed number of workmen must adhere to the model standing orders under the Industrial Employment (Standing Orders) Act 1946, which lays down certain conditions of service which must be uniformly implemented across the workforce who qualify as workmen.
Some statutes which regulate local businesses require prescribed particulars to be disclosed in writing to the employee.
Where an employment contract is written, it will usually include the following:
The employee's position and duties.
Remuneration including other benefits such as bonus, provident fund contributions, and so on.
Working hours, holidays and leave provisions.
Term of employment (where applicable) and termination provisions.
Provisions for dispute resolution in relation to key employees.
Certain terms are implied into the employment relationship, including:
Duty of fidelity.
Duty of confidentiality.
Duty to protect the employer's property.
Collective agreements are common in labour intensive sectors, particularly the manufacturing sectors, including:
The automobile industry.
The banking sector.
The pharmaceutical sector.
There are special rules that apply to employees falling within the definition of "workman" under the ID Act. Where an employer wishes to change the conditions of employment (for example, wages, working hours and so on) of an employee who falls within the definition of a workman, the employer must give either 21 or 42 days' notice of the change in the prescribed form (the length of notice depends on which jurisdiction in India the employee is located in). The employee can then either agree to the change, or object to it and raise an industrial dispute. Where an objection is raised, the dispute must be resolved by the relevant tribunal and the change cannot be made until the dispute is resolved.
For employees not covered by the ID Act, the employment contract will determine whether or not unilateral changes can be made by the employer.
The Minimum Wages Act 1948 grants each local government the power to fix minimum wage rates for:
Minimum wages therefore vary from region to region.
The minimum wage to which an employee is entitled depends on:
The nature of the employment.
The industry where the employee is employed.
The geographic location of the employment.
The employee's age.
Restrictions on working time
Working hours are governed by a variety of statutes depending on the nature of the activity undertaken by the establishment. For example, if the establishment is a factory, the Factories Act 1948 (Factories Act) applies, and if the establishment is involved in a commercial activity, then the local shops and establishments statute applicable in the region in which the establishment is located applies. Generally, these statutes provide for working hour limits both on a daily and weekly basis. The normal daily hour limits range from between eight to nine hours, and the usual weekly limit is 48 hours. Under the Factories Act, the daily limit cannot be exceeded without the prior permission of the authorities. Under the local shops and establishments statute, the normal working hour limits can only be exceeded up to certain prescribed limits, and overtime payments must also be made. Employees cannot opt out of the working hours stipulated under law.
Rest breaks usually range from half an hour to one hour for each working day and are usually required to be given after four hours, or in some states five hours, of continuous work.
Shift workers have the same working hours and rest breaks as other employees. However, establishments using shift workers must obtain the prior approval of the government authorities to keep the establishment open beyond the prescribed opening and closing hours.
Minimum holiday entitlement
Holiday entitlement is generally covered by the employment contract. However, where the employer is involved in a commercial activity, the local shops and establishments statutes will apply and these determine the minimum thresholds concerning holiday entitlement. The thresholds usually range from 12 to 21 days' holiday per year. Certain local shops and establishments statutes also contain provisions concerning sick leave and casual leave (which generally ranges from 12 to 24 days).
Further, the Factories Act provides that every adult worker who has worked in a factory for at least 240 days in a calendar year is entitled to one day's leave with wages for every 20 days of work.
These holidays differ from region to region and range from between four to ten days' holiday each year.
Illness and injury of employees
Entitlement to time off
Where the employer is involved in a commercial activity, some of the local shops and establishments statutes provide that employees are entitled to leave on account of illness or injury. Factories which employ the requisite number of workmen must also provide sick leave to their employees (in accordance with the Factories Act). These periods of sick leave are paid.
The local shops and establishments statutes apply to all categories of employees except where the government has issued specific exemptions in relation to certain classes of employees.
Entitlement to paid time off
Where an employee is entitled to time off for illness or injury, the period of leave will be paid (see above, Entitlement to time off).
Recovery of sick pay from the state
Employees who are covered by the ESI Act can claim sickness or disablement benefit (which is paid by the government). The employer cannot recover any sick pay from the government.
Where the employee is entitled to benefits under his conditions of service which are similar to benefits under the ESI Act, the employer can discontinue or reduce those benefits under the conditions of service to the following extent:
Sick leave on half pay to the full extent.
Such proportion of any combined general purposes and sick leave on half pay as may be assigned as sick leave (but not exceeding 50% of the combined leave).
Further, if the employee avails himself of any sick leave from the employer under his conditions of service, the employer will be entitled to deduct from the employee's leave salary the amount of benefit he is entitled to under the ESI Act.
Statutory rights of parents and carers
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
The MBA provides maternity leave to every woman employed in an establishment for at least 80 days preceding the expected date of delivery, up to a maximum period of 12 weeks (of which not more than six weeks can precede the date of delivery). The employee receives her salary during the statutory maternity period.
A female employee is also entitled to leave with payment of maternity benefit for an additional six weeks in the case of miscarriage or medical termination of the pregnancy, and for two weeks with payment of maternity leave for a tubectomy operation.
Further, a woman suffering from an illness arising out of pregnancy, delivery, premature birth, miscarriage, medical termination of pregnancy or a tubectomy operation is entitled to leave with payment of maternity benefit for an additional one-month period. A medical bonus of INR3,500 will also be provided to these employees and they are entitled to certain prescribed nursing breaks.
In the event the employee is covered under the ESI Act, the benefit is paid by the government.
Indian employment law does not provide for paternity rights.
The provisions of the MBA and the ESI Act are also applicable to surrogate mothers. The statutes do not provide any rights to the parents under a surrogacy arrangement.
Indian employment law does not provide for adoption rights.
Indian employment law does not provide for parental rights.
Indian employment law does not provide for carers' rights.
Continuous periods of employment
Statutory rights created
Certain statutory benefits are available only to persons in continuous employment for a particular period of time. For example, retrenchment compensation under the ID Act is payable only to workmen who have been employed for a continuous period of at least 240 days in the establishment. Gratuity amounts are payable only if an employee has worked with an establishment for at least four years and 240 days. Leave entitlement in a particular calendar year is also dependent on the employee's length of service for that year.
Consequences of a transfer of employee
Indian law does not recognise the automatic transfer of employment. In the case of a transfer of an undertaking, the ID Act provides that workmen are deemed to be dismissed unless the buyer fulfils certain conditions, including providing the workmen with continuity of service (see Question 24, Automatic transfer of employees).
Fixed term, part-time and agency workers
A temporary worker is one who is engaged for a limited time period and/or for a specific purpose. The definition of "workman" under the ID Act does not exclude temporary workers and they are entitled to the same benefits as full-time workers subject to the provisions of the ID Act in relation to termination provisions. However, where a temporary worker is employed for a genuine specific task for a limited time period, the usual provisions concerning termination for full-time workers will not apply to that temporary worker.
Conversely, where a worker is categorised as a temporary worker and that categorisation is revealed to be a sham, and the employer has used the categorisation to avoid providing the worker with certain rights provided by law, a tribunal will usually grant that employee the same severance benefits as a full-time worker under the ID Act where the worker has been employed for more than 240 days.
Generally, all other labour statutes apply to temporary workers.
The employment of agency workers through third party contractors is governed by the Contract Labour (Regulation and Abolition) Act 1970. It is applicable to:
Every establishment which is not seasonal in character that employs 20 or more workmen as contract labour in the preceding 12 months.
Every agency employing 20 or more workmen in the preceding 12 months.
Agency workers are not treated as the employees of the establishment unless the contract between the establishment and the agency is shown to be a sham, in which case all the statutory benefits usually received by the establishment's employees will be extended to the agency workers.
The duration for which the agency workers have been employed in the establishment is one of the factors that the court considers when determining whether or not an agency contract is a sham, though there is no prescribed length of service that determines that an agency worker is in fact an employee.
Where any regular employee is misclassified as an agency worker or temporary worker and is not given the statutory or contractual benefits he is entitled to, an industrial dispute can be raised.
See above, Temporary workers.
Employer's data protection obligations
The storage, management and handling of sensitive personal data or information belonging to natural persons located in India is regulated by the Sensitive Information Rules. Sensitive personal data or information is defined under the Sensitive Information Rules to mean information concerning:
Financial information, for example, bank account or credit card details.
Physical, psychological and mental health conditions.
Medical records and history.
Any body corporate receiving any of the above types of information as a result of either using the services of an individual or employing an individual must comply with the Sensitive Information Rules regarding processing and storing that information.
Discrimination and harassment
Protection from discrimination
Indian employment law prohibits discrimination on the basis of gender both at the time of recruitment and during employment at the workplace. A general prohibition against discrimination is provided under the Constitution of India. These provisions are usually applicable to government bodies. However, it is not clear whether the courts, when interpreting these constitutional protections, could extend them to also cover private entities.
Protection from harassment
The Supreme Court in Vishakha v State of Rajasthan, AIR 1997 SC 3011 laid down guidelines for the prevention of sexual harassment against women at workplaces. Under the guidelines employers must ensure that an adequate complaints procedure is put in place at work, and appropriate disciplinary action must be taken against those found guilty of discrimination or harassment.
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redress) Act 2013 (SHA) received the assent of the President on 23 April 2013 and came into force on 9 December 2013. The Act reflects the Supreme Court's decision in the Vishakha case and makes it mandatory for all offices, hospitals, institutions and other workplaces to have an internal complaints procedure for dealing with complaints concerning sexual harassment. For this purpose, the SHA proposes the formation of both internal complaints committees and local complaints committees. A complaint under the SHA must be made within three months from the date of the incident (this can be extended by the Internal Committee under the SHA for recorded reasons).
The Whistle Blowers Protection Act 2011 received the assent of the President on 9 May 2014 and is yet to be notified. It is intended to protect those making a public interest disclosure related to an act of corruption, misuse of power, or criminal offence by a public servant. There is no statutory protection available to whistleblowers in India until this is enforced. The Whistle Blowers (Amendment) Bill 2015 has been passed by the lower house of the Indian Parliament and seeks to address concerns relating to national security.
It is mandatory for every listed company, companies that accept deposits from the public and companies which have borrowed money from banks and public financial institutions in excess of INR50 crores to establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed under the Companies Act, 2013, read with the applicable rules. The details of the establishment of such mechanisms should be disclosed by the company on its website (if any) and in the board's report.
Termination of employment
Under Indian law, there are two types of dismissal:
Dismissal for cause.
Redundancy situations are considered in Question 21. Generally, the notice period for ordinary dismissal is one month, unless the employment contract provides for a longer notice period to be given. Under certain local shops and establishments statutes the employer is also required to notify the authorities of a dismissal event.
For dismissal with cause, the ordinary principles of natural justice must be followed, and once an employer has established that misconduct has been proved at an enquiry, the employer can proceed with dismissal without providing any notice period.
The employer must pay certain termination benefits to employees who are dismissed, including:
Any other amounts due under the employment contract.
Termination benefits are calculated on the basis of the employee's salary and length of service.
However, the employer is entitled to recover any damage suffered by it on account of the employee's wrongdoing from the gratuity payment.
Procedural requirements for dismissal
The employer must hold an enquiry before dismissing an employee for cause. During this enquiry the employee is entitled to prove his innocence and it is imperative that the employer follows the principles of natural justice while conducting the enquiry.
Protection against dismissal
Under the ID Act, the employer must follow the correct procedure for dismissing employees. Where the correct procedure is not followed, the dismissal is not valid and the employee can claim reinstatement with back pay.
In addition, under certain local shops and establishments statutes, employees can only be dismissed for reasonable cause. Where the employer fails to evidence the necessary cause for dismissal in these instances, the dismissal will be invalid.
A female employee who is on maternity leave cannot be dismissed during, or because of, her maternity leave. In the case of a pending dispute, an employer will require permission of the authority to change the conditions of service of, or dismiss from service, workmen who are members of the executive or are other office bearers of a trade union.
Definition of redundancy/layoff
Under the ID Act, the services of a workman can be terminated by redundancy. The redundancy definition under the ID Act is quite wide and refers to the termination of workmen's services by the employer for any reason other than the following reasons:
Dismissal as a result of disciplinary action.
Retirement (whether voluntary or otherwise).
Termination on grounds specified in a fixed term-contract (or the non-renewal of a fixed term contract).
The following procedural requirements must be met when considering redundancies:
The employer must follow the "last in, first out" rule unless it has cogent reasons to deviate from this rule.
The employer must give one month notice period or wages in lieu of notice to workmen who have been working with the employer for 240 days or more.
Formal notice of redundancy to be given to the appropriate government department.
In the case of certain establishments (for example, factories) that employ 100 or more workmen during the preceding 12 months, workmen who are made redundant must be given three months' notice or three months' wages in lieu of notice. The prior approval of the appropriate government department must also be acquired before dismissing such workmen.
A workman who is made redundant is entitled to compensation of 15 days' average pay for every completed continuous year of service (or every part of a year completed, provided it amounts to over six months).
The provisions related to redundancies under the ID Act also apply to collective redundancies.
Employee representation and consultation
Management representation is not required under statute, except in relation to the obligation to form a committee under the ID Act to redress grievances, and the internal committee that is required under the SHA.
There is no requirement to consult with employees about issues that affect them or about major transactions.
Employee consultation and employee consent are not required for major transactions.
An employer only has a duty to consult if this is expressed in the employment contract. If the employer has contractually agreed to consult the employees on certain issues and if it fails to do so, the employees can refer the matter to the courts/tribunals to enforce those rights.
Though there is no statutory right for employees to be consulted on major transactions, in practice employees can employ a number of tactics to delay or frustrate the proceedings. Employees are still able to approach the courts/tribunals on the following grounds:
That their livelihood will be affected by the proposed major transaction.
That the major transaction is a sham.
Employees can adopt these tactics as a way of ensuring that the seller takes their rights into consideration when negotiating the terms of the major transaction.
Consequences of a business transfer
Automatic transfer of employees
Indian employment law does not provide for the automatic transfer of employees. Under the ID Act, workmen who have been with an employer for not less than 240 days are deemed to have been dismissed and are entitled to a redundancy payment, as explained below, and at least one month's wages on the transfer, unless both of the following apply:
The employee consents to their employment being transferred to the buyer.
The buyer agrees to provide the employee with continuity of service on no less favourable terms than what the employee was entitled to prior to the transfer.
Where these conditions are not met, the transferring employer will be liable for redundancy payments (that is, compensation of 15 days' average pay for every completed year of service (or every part of a year completed, provided it amounts to over six months)) and salary in lieu of the notice period as is required under law.
With respect to employees other than workmen, the employees will usually have their employment terminated by the seller. In the event the buyer agrees to provide continuity of service, that continuity will then be reflected in the employment contract that the buyer draws up with the employees (see also Question 14).
Protection against dismissal
See above, Automatic transfer of employees.
Harmonisation of employment terms
Where the buyer agrees to provide continuity of service to the employees, the employment terms can be harmonised to the extent that the harmonisation does not result in the transferred employees being subject to less favourable terms than they were subject to under their previous employment.
Employer and parent company liability
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
The law of tort governs the employer's liability for the acts of its employees that are committed during the course of their employment. If an employee commits any tort during the course of his employment, and the act falls within the scope of his ordinary functions, the employer will be liable for that tort.
Parent company liability
A subsidiary is recognised as a separate legal personality, distinct from its parent/holding company and therefore a parent company will not be held liable for the acts of its subsidiary's employees. The only situation in which the parent company can be held liable is where the subsidiary can be proven to have acted as the parent's agent, branch or department on the basis of the "corporate veil" doctrine.
Employee rights on insolvency
If an employer (company) is declared insolvent and consequently wound up, amounts owed to workmen are given an overriding preference to other debts under Section 529A of the Companies Act 1956. All wages, salary due for a period not exceeding four months and sums due from any statutory welfare funds are also required to be paid on a priority basis. The corresponding provisions in Section 326 under the Companies Act 2013 have not yet been notified.
State guarantee fund
There is no state fund for repayment of employment debts if an employer is declared insolvent.
Health and safety obligations
The Factories Act 1948 and local shops and establishments statutes provide certain health and safety requirements that factories must ensure are complied with, including:
Ensuring the premises are kept clean.
Ensuring the proper discharge of waste and effluents.
Complying with the restrictions on working hours.
Providing safety measures for employees handling hazardous materials/machines.
In the case of other establishments, the local shops and establishments statutes contain provisions covering cleanliness of the premises, ventilation, precautions for the safety of employees, and so on.
Taxation of employment income
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Foreign nationals are subject to income tax in India on all their income derived from a source in India or received in India during the relevant tax year (subject to any exceptions under a double taxation treaty).
This income also includes income deemed to be received or deemed to accrue/arise in India. Generally, income from salaries is deemed to accrue or arise in India if the services are rendered in India.
However, for an individual who is not a citizen of India, section 10(6)(vi) of the Income Tax Act 1961 (ITA) provides that the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India will be exempt from income tax subject to the following conditions being fulfilled:
The foreign enterprise is not engaged in any trade or business in India.
The foreign national's stay in India does not exceed in the aggregate a period of 90 days during the relevant tax year.
The remuneration received by the said foreign national is not liable to be deducted from the income of the foreign enterprise chargeable to tax in India.
Where a foreign national comes to India and is present in India for a period of 182 days or more during the relevant tax year, he will be considered resident in India. However, for the initial few years (two or three years, depending on his date of arrival and the number of days stay in India), he will be considered as not ordinarily resident for tax purposes and the following income will be subject to tax in India:
Income received, or deemed to be received, in India.
Income accrued or arising, or deemed to accrue or arise, in India.
Income accrued or arising outside of India in relation to a business controlled, or a profession set up, in India.
Thereafter, once he becomes "ordinarily resident" in India, his global income is taxable in India.
Nationals working abroad
As a general principle, the global income of an individual who is "ordinarily resident" (see above, Foreign nationals) in India is chargeable to tax in India, including all incomes which accrue or arise outside India during the relevant tax year.
However, if this person's stay in India is for less than 182 days in aggregate during the relevant tax year, such person would be considered a non-resident in India for that year. In this case, the person would be liable for tax in India only for income derived from a source in India or received in India during the relevant tax year, including income deemed to be received or deemed to accrue or arise in India (subject to any exceptions under an applicable double taxation treaty).
Rate of taxation on employment income
The following rates of income tax apply to individuals as of 1 April 2015 (different tax rates are levied on income received by persons aged above 60 years and 80 years):
Income of INR250,000 or less: nil.
Income above INR250,000 but not more than INR500,000: 10% on the amount exceeding INR250,000.
Income above INR500,000 but not more than INR1 million: INR25,000 plus 20% on the amount exceeding INR500,000.
Income above INR1 million but not more than INR10 million: INR125,000 plus 30% on the amount exceeding INR1 million.
Where the income exceeds INR10 million: INR125,000 plus 30% on the amount exceeding INR1 million (as increased by a surcharge at the rate of 12% of the amount of income-tax so computed).
In addition to the above, an education cess at a rate of 3% is also payable.
Social security contributions
The EPF Act applies to specified factories and establishments employing 20 or more employees. The EPF Act provides for the following three schemes:
Provident Fund Scheme (PF Scheme).
Employee Deposit Linked Insurance Scheme (EDLI Scheme).
The PF Scheme is applicable to all employees earning a salary of not more than INR15,000 per month, unless:
They have been members of the fund during their previous employment.
The employer and concerned employee voluntarily seek coverage.
The employee is an "international worker" (that is, a foreign national working in India), where the EPF Act is applicable regardless of the salary threshold.
The statutory rate of contribution under the PF Scheme is 12% of the statutory defined wages, which is paid by both the employer and employee (that is, the total payable is 24%). The employer must pay both its own and its employees' contribution, but can recover the employees' contribution by deducting the amount from the employees' salary. A portion of the employer's contribution (equating to 8.33%, which is capped at wages of INR15,000 per month) is diverted from the PF Scheme into the Pension Scheme. Existing members whose monthly salary is in excess of INR15,000 as on 1 September 2014 can continue with their membership, provided they exercise the option to continue to contribute in excess of INR15,000 within six months from 1 September 2014, and they are required to make a contribution at a rate of 1.16% fixed on salary exceeding INR15,000 under the scheme.
Under the EDLI Scheme, the employer must contribute 0.5% of basic wages. The wages on which this amount is calculated is capped at INR15,000 per month for all employees.
The ESI Act is applicable to establishments employing 20 or more employees (though in some states this threshold is reduced to ten employees). Under the ESI Act (which applies to employees whose salary do not exceed INR15,000 per month), both employee and employer must make contributions to the Employees' State Insurance Corporation at the rate of 1.75% and 4.75% respectively. The employer must pay both its own and its employees' contributions, but can recover the employees' contributions by deducting the amount from the employees' salary (see Question 33).
Intellectual property (IP)
Under the Indian Copyright Act 1957, the author is the first owner of the copyright. However, in the case of an artistic or literary work produced in the course of an author's employment, or under a contract of service or apprenticeship, the employer is (in the absence of any agreement to the contrary) the first owner of the copyright.
Under the Patent Act 1970, the right to patent inventions made by employees during the course of their employment is determined by the terms of the contract between the employer and employee. The ownership of a patent in the first instance will vest in the employee in cases where the employer is a legal entity and not a person. In these cases, the employer must execute an assignment deed in its favour for the patent right to pass to it. Alternatively, the assignment right can be included in the employment contract.
Restraint of trade
Restriction of activities
During the term of employment, an employer can restrict the employee from working for a third party. Provided that the terms of that restriction are not excessively harsh (given the facts of each case), the courts will enforce it.
Post-employment restrictive covenants
Non-compete post-employment provisions must be considered in the light of section 27 of the Indian Contract Act 1872 (Contract Act). Section 27 states that any agreement which restrains a person from exercising a lawful profession, trade or business of any kind is void. Judicial precedents further state that whilst negative covenants can be enforced throughout the term of an employment contract, negative covenants operating beyond the term of employment are void. Indian law does not distinguish between partial and total restraint of trade, and so any non-compete post-employment provision will be considered void and will not be enforceable against the employee.
The position is not so clear concerning non-solicitation post-employment clauses and whether they are in restraint of trade, as this depends on the circumstances of each particular case, and the parameters under which the clause is drafted. However, even where non-solicitation clauses are upheld by the courts, at best an employer will generally only be entitled to damages from the infringing employee for breach of contract. Even in this instance, the employer will need to show that the enforcement of the non-solicitation provision is essential to protect its confidential information, and that the provision does not prejudice the employee's ability to carry on a business or trade. Indian courts will be very reluctant to grant an injunction which effectively prevents a customer from taking his business elsewhere. Where there is a non-solicitation clause preventing the former employee from soliciting the employer's other employees, the courts are also reluctant to grant injunctive relief preventing the employees being solicited from leaving the employer.
Proposals for reform
The final enforcement of certain legislation is pending, including the following:
Companies Act 2013 (to the extent not yet notified).
Notification of Vacancies Bill 2013.
Separately, other important proposed regulatory changes are:
There have been recent media reports suggesting that the government is considering increasing the coverage limit under the ESI Act to INR25,000 per month. Reports also suggest proposed amendments to the MBA enhancing maternity leave for working women from three months to six months, and changes in the PBA to extend its applicability to employees who earn a monthly salary ranging between INR18,000 and INR20,000 from the current eligibility norms that limit the coverage to employees earning a monthly salary of INR10,000. Media reports also suggest that a proposal is being considered by the Government to extend the gratuity provisions to all employees irrespective of their length of service. There have also been media reports suggesting that the labour ministry is looking at introducing amendments to the EPF Act. One of the proposals suggested is to reduce the threshold for applicability of the EPF Act from 20 to ten. It also proposes to amend the definition of contributory wages to include basic pay and all allowances paid to workers.
The Factories Act (Amendment) Bill 2014 was introduced in the lower house of the Indian Parliament and is intended to amend certain provisions, including those relating to an increase in the leave entitlement of an employee and the health and safety requirements in factories. However, this bill has not been approved by either house and is currently not in force. The Child Labour (Prohibition and Regulation) Amendment Bill, 2012 was introduced in the upper house of the Indian Parliament and proposes a complete ban on the employment of children except to the extent of helping the family after school hours. It also introduces a new category of persons called adolescents who are between 14 and 18 years of age and regulates the process in which they can be employed.
Separately, the government has undertaken to consolidate 44 labour laws into four codes broadly dealing with industrial relations, wages, social security and working conditions and safety. Of these, drafts of the following codes have been made available to the public. The Labour Code on Industrial Relations Bill, 2015 seeks to integrate three labour laws: ID Act, Trade Unions Act, 1926 and Industrial Employment (Standing Orders) Act, 1946. Some of the significant changes proposed deal with:
termination of employment of workers in certain circumstances without government permission in the case of lay-offs, redundancies and site closures;
restrictions on the formation of trade unions;
increase in the redundancy compensation to 45 days' average pay from the currently prevailing 15 days' average pay.
The Government has also proposed the Labour Code on Wages Bill, 2015 to merge the following four pieces of legislation: Minimum Wages Act, 1948, Payment of Wages Act, 1936, PBA and the Equal Remuneration Act, 1976. Some of the significant changes proposed are:
restricting the power of the state governments to fix minimum wages;
prohibiting discrimination among male, female and transgender employees on the ground of sex in the matter of wages, under the same employer, in respect of work of same or a similar nature.
The Government is also planning to introduce the Small Factory (Regulation of Employment and Conditions of Services) Bill which seeks to exempt units employing less than 40 workers from various labour laws, including the Factories Act subject to certain conditions.
Bureau of Immigration, India
Description. This is the official website for the Bureau of Immigration, maintained by the government and containing English translations.
Ministry of Labour and Employment
Description. This is the official website for the Ministry of Labour and Employment, maintained by the government and containing English translations.
Ministry of Home Affairs
Description. This is the official website for the Ministry of Home Affairs, maintained by the government and containing English translations.
PRS Legislative Research
Description. This is the official website of PRS Legislative Research, maintained by the government and containing English translations.
India Code Legislative Branch
Description. This is the official website of India Code, maintained by the government and containing English translations.
AZB & Partners
T +91 22 4072 9999
F +91 22 6639 6888
Professional qualifications. England & Wales, 1991
Areas of practice. Labour law; real estate.
- Advising on general labour legislation and state specific laws, including contract law, sexual harassment and termination of employment.
- Drafting and reviewing offer letters, employment agreements, secondment agreements and employee handbooks.
- Advising multinationals on the legal issues concerning the issuance of stock options and the benefits of local subsidiary operations.
- Training of management and employees on applicable local labour law.
AZB & Partners
T +91 80 4240 0500
F +91 80 2221 3947
Professional qualifications. India, 2001
Areas of practice. Labour law; real estate.
- Advising clients on the dismissal of employees and strategies to be adopted on dismissal.
- Drafting and reviewing offer letters, employment agreements, secondment agreements and employee handbooks.
- Training of management and employees on applicable local labour law.
Aditya Singh Chandel
AZB & Partners
T +91 120 4179 999
F +91 120 4179 900
Professional qualifications. India, 2005
Areas of practice. Income tax laws; customs laws; excise laws; service tax and VAT.
Recent transactions. Actively involved in providing tax advisory services in relation to taxation of salary.