Agent of Record (AOR)
A service provider that administers onboarding, invoices and compliance checks for contractors you engage directly, without becoming the contracting party.
India HR, Payroll and EOR Glossary 2026
Plain-English definitions of the 170 terms you meet when you hire, pay and stay compliant in India. Every entry is written against the law as it stands after the Labour Codes and the Income-tax Act, 2025, with rupee examples and links to the primary source.
Last reviewed 25 Oct 2026 by Ranjana Vaidya, Chartered Accountant
170India terms defined
14Topics covered
131Updated for 2025-26 reforms
9Laws and codes tracked
What changed in India's employment rules in 2025 and 2026?
These dated changes reset how you hire, pay and file in India. Each one links to the terms it rewrote, so you can see what moved.
DPDP Rules published
The rules under the Digital Personal Data Protection Act, 2023 were notified, starting an 18-month runway for most employer duties.
Terms affected: DPDP Act 2023, Background verification, HRIS
Four Labour Codes in force
Twenty-nine central labour laws were folded into four codes. Appointment letters became mandatory and the 50% wage rule took effect.
Terms affected: Labour Codes, Code on Wages, Wage definition (50% rule), Appointment letter
Income-tax Act, 2025 starts
The 1961 Act gave way to a new Act built on a single tax year. Form 130 replaces Form 16 for salary TDS from tax year 2026-27.
Terms affected: Form 16 (now Form 130), TDS on salary, Tax residency
Central rules under the codes
The Centre published final rules for the four codes. State rules are still arriving, so state laws keep shaping hours, leave and holidays.
Terms affected: Labour Codes, Shops and Establishments Act, OSH Code
EPF Scheme, 2026 notified
New EPF, EPS and EDLI schemes under the Code on Social Security replaced the 1952, 1995 and 1976 schemes. Contribution rates stayed at 12%.
Terms affected: EPF, Code on Social Security, UAN
EPF ceiling rises to ₹25,000
The PF wage ceiling went from ₹15,000 to ₹25,000 a month. Employer PF at the cap rose from ₹1,800 to ₹3,000 a month.
Terms affected: EPF, EPS, Employer contribution
- Coming up
DPDP consent managers
Provisions on registered consent managers start, one year after the rules were published.
Terms affected: DPDP Act 2023
- Coming up
DPDP duties apply in full
Notices, security safeguards, breach reporting and data principal rights become enforceable for every employer holding staff data.
Terms affected: DPDP Act 2023, Employee offboarding, ISO 27001 (data security in EOR)
Which part of hiring in India are you working on?
Pick a topic to filter the index. The number shows how many terms sit in it.
Which India employment term do you need?
Every term links to its own page with a quick answer, a worked example where money is involved, and the source law. Terms marked Updated 2025-26 changed under the latest reforms.
A
Annual compliance
The yearly set of board meetings, AGM, ROC returns, audit, tax and FEMA filings every Indian company must complete, whether or not it trades.
Appointment letter
The written letter an Indian employer must issue to every employee on appointment under the OSH Code, 2020, recording designation, category, wages and social security.
Articles of Association (AoA)
The internal rulebook of an Indian company, covering board powers, meetings, share transfers and director appointments, filed with the memorandum at incorporation.
Asset recovery
Getting company laptops, phones, cards and data back from a departing employee in India, and recovering any loss lawfully from final wages.
Attendance and leave management
Tracking working hours, overtime and leave in India against the OSH Code and state Shops and Establishments Acts, and keeping the registers that prove it.
Automatic route vs government route
The two entry paths for foreign investment in India: automatic needs no prior approval, government route needs Central Government clearance before money comes in.
B
Back-office support
The administrative work behind an India team, such as payroll inputs, statutory filings, records, invoices and HR admin, done so the team can focus on its role.
Background verification
Checking a candidate's identity, education, past employment and, where relevant, criminal record before or after hiring in India, with consent and under the DPDP Act.
Basic salary
The fixed core of an Indian salary, before allowances, on which PF, gratuity, the HRA exemption and employer NPS limits are calculated.
Branch Office
An extension of a foreign company in India, approved under FEMA, that can earn income from listed activities and is taxed as a foreign company.
Build-Operate-Transfer (BOT)
A model where a partner builds and runs an India team for a foreign company, then transfers the people and operations to that company's own entity.
C
Campus hiring
Recruiting final-year students directly from colleges and universities, usually through the campus placement office, for roles that start after graduation.
Captive center
An Indian unit a foreign group owns and runs to serve only itself, billing the parent at cost plus an arm's length margin.
Casual leave
Short paid leave for unplanned personal needs in India, set by state Shops and Establishments law. Maharashtra gives 8 days a year that lapse at year-end.
Certificate of Incorporation
The document the Registrar of Companies issues when an Indian company is registered, showing its CIN, date of incorporation and the PAN and TAN allotted to it.
Co-employment
An arrangement where two organisations share employer responsibilities for the same worker, usually a client directing the work and a provider running HR.
Code on Social Security
India's 2020 Labour Code that merges EPF, ESI, gratuity, maternity benefit, employees' compensation and gig worker welfare into one law, in force from 21 November 2025.
Code on Wages
India's 2019 law on what counts as wages, minimum and floor wages, pay timelines, deductions, bonus and equal pay, in force from 21 November 2025.
Consultant
An outside expert engaged under a contract for services to advise or deliver specialist work, paid fees rather than salary and outside employee benefits.
Contract Labour (CLRA)
India's rules on workers supplied through contractors, once in the Contract Labour Act, 1970 and now in the OSH Code, covering licences, wages and banned work.
Contractor of Record (COR)
An intermediary that signs service contracts with independent contractors for a client, pays them, deducts TDS and checks the engagement is not disguised employment.
Corporate Identification Number (CIN)
The unique 21-character code the Registrar of Companies allots to every Indian company at incorporation, showing listing status, industry, state, year, type and registration number.
Corporate tax in India
The income tax Indian and foreign companies pay on profits taxable in India, from 22% for domestic companies to 35% for foreign companies and branches.
Cost to Company (CTC)
The total yearly amount an employer spends on one employee in India: gross salary plus employer PF, EDLI, PF admin charges and the gratuity provision.
Counter-offer
A better deal a current employer offers to keep an employee who has resigned, usually made during the notice period in India.
D
Digital Signature Certificate (DSC)
An electronic credential issued by a licensed Certifying Authority that lets a director or officer sign MCA21, income tax and other government filings in India.
Director Identification Number (DIN)
A unique 8-digit number the Central Government allots to an individual before they can serve as a director of an Indian company, valid for life.
Distributed workforce
A workforce spread across many cities or countries with no single main office, where each person's location sets the employment rules that apply.
Double Taxation Avoidance Agreement (DTAA)
A tax treaty between India and another country that decides which country taxes an income and caps Indian tax, claimed with a TRC and Form 41.
DPDP Act 2023
India's 2023 law on processing digital personal data, which governs how employers collect, secure, retain and erase employee data, with most duties live from 13 May 2027.
DPIIT / Startup India recognition
Government recognition as a startup under the Startup India programme, granted by DPIIT to young Indian entities that meet age, turnover and innovation tests.
Dual employment
Holding two employment contracts with different employers at the same time, often undisclosed, which Indian law leaves mainly to the employment contract.
E
Earned leave (privileged leave)
Paid annual leave an Indian employee earns by working, usually one day for every 20 days worked, which can be carried forward and encashed.
EDLI scheme
Employees' Deposit Linked Insurance: EPFO life cover for EPF members, funded by a 0.5% employer contribution and paying ₹2.5 lakh to ₹7 lakh.
Employee lifecycle
The stages an employee passes through with one employer, from recruitment and onboarding through pay, appraisal and development to exit and alumni.
Employee misclassification
Treating someone who works like an employee as an independent contractor, which in India can trigger back EPF, gratuity, bonus, leave and salary tax dues.
Employee offboarding
The managed exit of an employee in India, covering notice, handover, asset return, access removal, final wages within two working days and exit letters.
Employee onboarding
Everything an employer does between a signed offer and a working new hire in India, from appointment letter and UAN to payroll, laptop and induction.
Employee self-service portal
A secure login where employees download payslips, apply for leave, submit tax declarations and update their own details without going through HR.
Employees' Pension Scheme (EPS)
The EPFO pension scheme funded from 8.33% of the employer's PF share, paying a monthly pension from age 58 after 10 years' service.
Employees' Provident Fund (EPF)
India's compulsory retirement savings fund, run by EPFO, where employer and employee each pay 12% of wages monthly, now on a ₹25,000 ceiling.
Employees' State Insurance (ESI)
India's state health and income insurance for lower-paid employees, run by ESIC and funded by 3.25% employer and 0.75% employee contributions.
Employer contribution
The statutory amounts an Indian employer pays on top of salary, mainly employer PF, EDLI, ESI, gratuity provision and statutory bonus.
Employer of Record (EOR)
A company that legally employs staff in India through its own Indian entity for a client, handling contracts, payroll, tax and statutory benefits.
Employment contract
A written agreement between an employer and employee in India that sets pay, duties, hours, leave, notice and exit terms, enforceable under the Indian Contract Act, 1872.
Entity-free hiring
Employing or engaging people in India without forming your own Indian company, usually through an employer of record or a contractor agreement.
EOR fee (flat vs percentage)
The service charge an employer of record adds on top of salary and statutory costs, set either as a flat monthly amount or a percentage of pay.
EOR switching (EOR migration)
Moving your India employees from one employer of record to another, which changes their legal employer while their job and PF account continue.
EOR-to-entity transfer
Moving employees from an employer of record's payroll onto your own Indian subsidiary once it is set up, with each employee's consent.
ESOPs for EOR employees
Stock options a foreign parent grants to staff employed in India through an employer of record, taxed at exercise and subject to FEMA overseas investment rules.
Exit interview
A structured conversation with a departing employee about why they are leaving, used to fix retention problems. Voluntary in India and never a condition of final pay.
Experience letter
A letter from an Indian employer confirming a former employee's designation, dates of service and work done, used by future employers and background checks.
F
FC-GPR
The RBI form an Indian company files on the FIRMS portal within 30 days of issuing shares or other equity instruments to a foreign investor.
Fixed-term employment
Employment on a written contract for a set period, with pay and benefits equal to comparable permanent staff and gratuity after one year of service.
Flexible Benefit Plan (FBP)
A salary design in India that lets employees route part of their CTC into tax-efficient components such as employer NPS, meal vouchers or reimbursements.
Foreign Direct Investment (FDI)
Investment by a non-resident in an unlisted Indian company's equity, or in 10% or more of a listed company, made under FEMA's Non-Debt Instruments Rules.
Foreign Exchange Management Act (FEMA)
India's 1999 law governing foreign exchange, cross-border payments and foreign investment, administered through RBI regulations and enforced by the Enforcement Directorate.
Foreign Inward Remittance Certificate (FIRC)
A certificate from the Indian bank that received a foreign payment, proving the inflow for FDI reporting, export records and GST refunds.
Form 12BB
The statement an Indian employee gives the employer to claim HRA, LTA, home loan interest and tax deductions in salary TDS, now Form 124.
Form 15CA and 15CB
The remitter's declaration and the chartered accountant's tax certificate filed before paying a non-resident, renamed Forms 145 and 146 from April 2026.
Form 16 (now Form 130)
The annual salary TDS certificate an Indian employer gives each employee, renamed Form 130 under the Income-tax Act, 2025 from tax year 2026-27.
Form 24Q
The quarterly statement an Indian employer files to report salary paid and TDS deducted for each employee, renamed Form 138 from tax year 2026-27.
Freelancer
A self-employed professional who sells services to several clients on short projects, invoicing per job rather than working as anyone's employee.
Full and Final Settlement (F&F)
The last payment an employer makes to a departing employee in India, covering final wages, leave encashment, gratuity and bonus, minus recoveries and TDS.
Fully loaded cost
The complete monthly or yearly cost of one employee, adding equipment, workspace, recruitment, insurance and provider fees to salary and statutory contributions.
G
Gig worker
A person who earns from work outside a traditional employer-employee relationship, recognised under India's Code on Social Security with platform-funded welfare schemes.
Global Capability Center (GCC)
An offshore unit that a multinational owns and staffs in India to run technology, operations or R&D work for the parent group.
Gratuity
A lump sum Indian employers pay on exit after five years' service, or one year for fixed-term staff, worth 15 days' wages per year.
Gross salary
An employee's total earnings before deductions, made up of basic pay, HRA, special allowance and other allowances, excluding employer PF and gratuity.
Group Medical Cover (GMC)
A health insurance policy an employer buys for its whole team in India, covering hospital bills for employees and often their families. Optional outside ESI.
Group personal accident insurance
An employer-bought policy in India that pays employees or their families a fixed sum after accidental death, permanent disability or injury, at work or outside it.
Group term life insurance
A life insurance policy an employer buys for its whole team in India, paying a fixed sum to the family if an employee dies while employed.
GST on EOR services
The 18% GST an Indian employer of record adds to its invoice, which falls to nil when the service qualifies as an export under LUT.
H
House Rent Allowance (HRA)
A salary allowance for an employee's rented home in India, partly tax-exempt under the old regime within limits set by the Income-tax Rules, 2026.
HRIS
Software that stores an organisation's employee records, payroll inputs, leave and attendance in one database, now subject to India's DPDP Act duties.
Hybrid work
A working pattern where employees split their week between an office and home, agreed in writing and run within India's hours, leave and data rules.
I
Independent contractor
A self-employed person who provides services to a business under a contract for services, outside employment, PF, ESI and gratuity, and invoices for the work.
Industrial Relations Code
India's 2020 Labour Code on unions, standing orders, fixed-term employment, strikes, lay-offs and retrenchment, replacing the Industrial Disputes Act from 21 November 2025.
Internal Committee (IC)
The committee every Indian workplace with 10 or more employees must set up under the POSH Act to receive and inquire into sexual harassment complaints.
International PEO
A provider that employs staff abroad through its own local entity for a foreign client, a term widely used interchangeably with employer of record.
International Worker (IW) under EPF
A foreign national on Indian payroll, or an Indian posted to an SSA country, who must contribute to EPF on full salary with no wage ceiling.
IP assignment clause
A contract term transferring ownership of work, code and inventions an employee creates to the employer, needed in India for patents, pre-existing IP and EOR set-ups.
ISO 27001 (data security in EOR)
The international standard for an information security management system, used to certify that an EOR protects employee payroll, identity and bank data.
IT equipment provisioning
Sourcing, configuring, delivering and tracking the laptops, devices and software access a new employee in India needs to start work on day one.
J
Joining bonus
A one-time payment an employer in India makes when a new hire joins, taxed as salary and often repayable if the person leaves early.
L
Labour Codes
India's four consolidated labour laws, on wages, industrial relations, social security and workplace safety, in force from 21 November 2025 in place of 29 central Acts.
Labour law compliance
Meeting the central Labour Codes, state rules and standalone laws such as POSH that govern how you hire, pay, manage and dismiss staff in India.
Labour Welfare Fund (LWF)
A state-run welfare levy in about 16 Indian states, deducted from employees and matched by employers, usually once or twice a year.
Lateral hiring
Recruiting experienced professionals from other organisations into a role at a similar or higher level, as opposed to hiring freshers from campus.
Leave encashment
Cash paid to an employee in India for unused earned leave, at year-end on demand or on exit, with a ₹25 lakh tax exemption on leaving.
Leave Travel Allowance (LTA)
A salary allowance that covers an employee's travel fares on leave within India, tax-exempt for two journeys in four years under the old regime only.
Liaison Office
A foreign company's representative office in India, approved under FEMA, that can promote and communicate for its parent but cannot earn any income.
Limited Liability Partnership (LLP)
A body corporate under the LLP Act, 2008 that gives partners limited liability, with at least two designated partners and one resident in India.
Loss of Pay (LOP)
A deduction from an Indian employee's salary for days of absence not covered by paid leave, calculated as a daily rate times the unpaid days.
M
Master Services Agreement (MSA)
The framework contract between a client and a service provider, such as an EOR, setting fees, liability, data, IP and exit terms for all later work orders.
Maternity Benefit Act
India's law on paid maternity leave, now part of the Code on Social Security: 26 weeks' leave, crèche duties and work from home by agreement.
Memorandum of Association (MoA)
The charter document filed at incorporation that fixes an Indian company's name, registered state, objects, member liability and share capital.
Minimum wage
The lowest pay an employer may lawfully give for a category of work in India, notified by the state or Centre under the Code on Wages, 2019.
Ministry of Corporate Affairs (MCA)
The Government of India ministry that administers the Companies Act, 2013 and the LLP Act, 2008, and runs the MCA21 portal for company filings.
Moonlighting
Taking paid side work, such as freelancing or a second job, outside regular employment, which Indian law mostly leaves to the employment contract.
N
National and festival holidays
The paid public holidays an Indian employer must give: three national holidays everywhere, plus state-mandated festival holidays such as Maharashtra's eight a year.
National Pension System (NPS)
India's voluntary, regulated retirement savings scheme. Under corporate NPS, employer contributions up to 14% of salary are tax-deductible under the new regime.
Net salary (take-home salary)
The amount that actually reaches an employee's bank account each month in India, after employee PF, professional tax and TDS come out of gross salary.
Non-compete clause
A contract term stopping an employee from working for a competitor. In India it is void after employment ends under section 27 of the Indian Contract Act.
Non-Disclosure Agreement (NDA)
A contract binding an employee in India to keep the employer's confidential information secret during and after employment, enforced through contract law and courts.
Notice period
The time an employer or employee in India must give before employment ends, set by contract for most staff and by the IR Code for retrenched workers.
Notice period buyout
A payment that lets an employee in India leave before serving their contractual notice, usually reimbursed by the new employer and taxed as salary.
O
Offer dropout
When a candidate accepts a job offer but does not join on the agreed date, a common problem in Indian hiring with long notice periods.
Offer letter
A conditional written job offer made to a candidate in India before joining, setting role, CTC and start date, later replaced by the statutory appointment letter.
Offshore Development Center (ODC)
A dedicated team that an Indian vendor employs and houses but assigns full time to one foreign client's software or IT work.
Old vs new tax regime
India's two personal income tax systems: the default new regime with lower slabs and few deductions, and the old regime with HRA, 80C and 80D.
OSH Code
India's 2020 Labour Code on workplace safety, working hours, annual leave, appointment letters, women's night work and contract labour, in force from 21 November 2025.
Overtime
Work beyond the daily or weekly hour limits in India, paid at no less than twice the normal rate of wages and capped at 144 hours a quarter.
P
Paternity leave
Paid leave a father takes around a child's birth or adoption. In India's private sector it is set by company policy, not law.
Payroll cycle
The recurring sequence an employer follows each wage period in India: collect inputs, compute pay, credit salaries, then deposit and file TDS, PF, ESI and state levies.
Payroll outsourcing
Hiring an outside provider to calculate salaries, deductions and statutory filings for your own Indian entity, while you remain the legal employer.
Payslip
The statement an employer in India gives each employee every wage period, showing earnings, deductions such as PF, Professional Tax and TDS, and net pay.
Performance appraisal
A periodic review of an employee's work against agreed goals, which in India usually sets the annual salary revision, variable pay and promotion.
Permanent Account Number (PAN)
The ten-character alphanumeric tax identity number the Income Tax Department issues to every Indian taxpayer, required for salary TDS, returns and tax credits.
Permanent employee
An employee hired with no fixed end date, entitled to the full statutory package including PF, leave and gratuity after five years of continuous service.
Permanent Establishment (PE) risk
The chance that a foreign company's activity in India creates a taxable presence under a tax treaty, exposing its India-linked profits to Indian corporate tax.
POSH Act
India's 2013 law requiring employers to prevent, prohibit and redress sexual harassment of women at work, through an Internal Committee, policy and annual reporting.
Private Limited Company
An Indian company with 2 to 200 members, restricted share transfers and limited liability, incorporated under the Companies Act, 2013 through SPICe+.
Probation period
A trial stretch at the start of employment in India when the employer assesses fit before confirmation, with length and notice set by contract or standing orders.
Professional Employer Organization (PEO)
A provider that runs HR, payroll and statutory filings for staff legally employed by your own Indian entity, which keeps the employer liability.
Professional Tax
A state tax on employment that Indian employers deduct from monthly salaries and pay to the state, capped by the Constitution at ₹2,500 a year.
Project Office
A temporary office a foreign company opens in India to execute one specific contract, allowed under RBI general permission for the project's life.
R
Recruitment Process Outsourcing (RPO)
An arrangement where an outside provider runs part or all of a company's hiring process, while the hires join the client's or its EOR's payroll.
Registrar of Companies (ROC)
The Ministry of Corporate Affairs office that registers companies in a state or region, keeps their public records and receives their annual filings.
Reimbursements
Payments that repay an employee in India for actual work expenses against bills, such as travel or client meals, kept outside taxable salary and wages.
Relieving letter
A letter an Indian employer issues confirming an employee's resignation was accepted and they were released from duty on a stated date, after clearing dues.
Remote team
A group of people who work for your company from homes or shared spaces rather than your office, often in another country.
Resident director
A director of an Indian company who has stayed in India for at least 182 days in the financial year, as section 149(3) of the Companies Act requires.
Retrenchment
Ending a worker's service in India for any reason other than discipline, retirement, contract expiry or ill-health, with notice and compensation owed under the IR Code.
Reverse Charge Mechanism (RCM)
A GST rule that shifts the duty to pay tax from the supplier to the buyer, used for imported services and a notified list of domestic services.
S
Salary arrears
Salary for an earlier pay period that is paid later in India, such as a backdated increment, often eligible for tax relief under section 157.
Salary benchmarking
Comparing the pay you plan to offer for an Indian role with market pay for the same role, level and city, on one CTC or gross basis.
Secondment
A temporary assignment in which an employee works for another group company, often in India, while keeping a link to the original employer.
Security deposit (EOR)
An amount a client pays an employer of record upfront, usually linked to one or two months of employment cost, held against unpaid invoices and exit liabilities.
Service Level Agreement (SLA)
A schedule of measurable service promises, such as payroll date, response time and onboarding time, with remedies if the provider misses them.
Shadow payroll
A parallel Indian payroll that calculates, withholds and reports Indian tax on pay an expat or secondee receives from a foreign employer, without paying the salary again.
Shops and Establishments Act
A state law that registers offices and shops and sets local working hours, weekly offs, leave and holidays, running alongside India's Labour Codes.
Sick leave
Paid leave for illness in India, set by state law and company policy rather than one central rule. ESI pays a cash sickness benefit to covered employees.
Social Security Agreement (Certificate of Coverage)
A bilateral treaty that stops cross-border staff paying social security in two countries, proven by a Certificate of Coverage from the home country.
Software Technology Parks of India (STPI)
An autonomous society under MeitY, set up in 1991, that registers software export units under the STP scheme and certifies their exports.
Special allowance
The balancing component of an Indian salary that absorbs whatever CTC remains after basic, HRA and employer costs. It is fully taxable.
Special Economic Zone (SEZ)
A notified enclave under the SEZ Act, 2005 where approved units operate as if outside India's customs territory, with duty-free inputs and zero-rated GST supplies.
Staff augmentation
Adding a vendor's skilled staff to your own team for a defined period, while the vendor stays their employer and bills you for their time.
Standing Orders
Certified service rules on worker classification, hours, leave, misconduct and termination, compulsory under the IR Code where an establishment has 300 or more workers.
Statutory audit
The yearly independent audit of a company's financial statements by a chartered accountant, required for every Indian company under the Companies Act, 2013.
Statutory bonus (Payment of Bonus Act)
The annual bonus Indian employers must pay eligible employees under the Code on Wages, between 8.33% and 20% of wages, within eight months of year-end.
Statutory compliance
The filings, deposits, registrations and registers Indian law requires from every employer, from salary TDS and EPF to Professional Tax and POSH reports.
Statutory vs non-statutory benefits
Statutory benefits are the ones Indian law makes you provide, such as EPF, ESI, gratuity and maternity leave. Non-statutory benefits are optional extras like health insurance.
Strike-off (entity closure)
The removal of a company's name from the Registrar's records, either by the ROC for inactivity or on the company's own STK-2 application, ending its legal existence.
Superannuation
In India, superannuation means retirement on reaching a set age, and also an employer-funded pension fund that pays out at that retirement.
T
Talent acquisition
The planned, ongoing work of finding, assessing, hiring and onboarding the people a business will need, beyond filling one vacancy at a time.
Tax Deduction Account Number (TAN)
The ten-character number every person who deducts or collects tax at source in India must hold and quote on challans, TDS statements and certificates.
Tax residency
Whether a person counts as resident, resident but not ordinarily resident, or non-resident for Indian income tax, set by days spent in India under section 6.
TDS on salary
Income tax an Indian employer deducts from monthly salary at the employee's average rate and pays to the government under section 392 of the Income-tax Act, 2025.
Termination of employment
The ending of an employee's job in India by the employer, whether for misconduct, retrenchment, contract expiry or under contract terms, each with its own legal rules.
Tier 1, 2 and 3 cities
A ranking of Indian cities by size and cost, used officially for HRA rules and informally by employers to plan hiring and pay.
Total employment cost
Everything an employer spends to keep one person employed in India: gross salary, employer statutory contributions, gratuity provision, insurance and benefits.
Transfer pricing
The rules that make related companies price cross-border dealings at arm's length, so an Indian subsidiary reports a fair profit for Indian tax.
U
Universal Account Number (UAN)
The permanent 12-digit number EPFO gives every provident fund member in India, linking all their PF accounts across employers into one record.
V
Variable pay
The part of an Indian pay package that depends on individual or company performance, such as an annual bonus or incentive, paid on top of fixed salary.
W
Wage definition (50% rule)
The Code on Wages rule that caps excluded pay, such as HRA and employer PF, at half of total remuneration and adds any excess back to wages.
Wholly Owned Subsidiary (WOS)
An Indian company whose entire share capital is held by a foreign parent and its nominee, usually set up as a private limited company under FDI rules.
Withholding tax
Tax an Indian payer deducts at source before paying a non-resident, such as on royalties or technical fees, at domestic or treaty rates.
Work from home (WFH) policy
A written policy setting who may work from home in India, on what hours, equipment, allowance and data terms, agreed between employer and employee.
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What does an Indian CTC turn into each month?
Type an annual CTC and see where every rupee goes: salary components, the employer’s statutory add-ons, deductions and monthly take-home pay. Each line links to its glossary entry.
Monthly take-home₹0
Take-homeIncome taxPF, ESI, PTEmployer costs
Which way of hiring in India fits your plan?
Answer four questions. The recommendation updates as you click and links to the terms behind it.
Which India HR terms get mixed up most often?
These pairs cause the most expensive mistakes for first-time employers in India. Pick one to see the difference side by side.
What is the difference between an EOR and a PEO in India?
Who the legal employer is. An EOR employs your team on its own Indian entity. A PEO runs HR and payroll for a company that already has one. In India the two labels are often mixed up, so ask every provider whose entity signs the appointment letter.
| Employer of record (EOR) | PEO | |
|---|---|---|
| Legal employer | The EOR’s Indian entity | Your Indian entity |
| Do you need an Indian entity? | No | Yes |
| Who signs the appointment letter | The EOR | You |
| PF, ESI and PT registrations | The EOR’s | Yours |
| Typical fit | 1 to 50 hires, testing India, no entity | An existing entity that wants HR and payroll run for it |
How do CTC, gross salary and take-home pay differ?
CTC is what you spend, gross salary is what the employee earns before deductions, and take-home pay is what reaches the bank. Here is an ₹18,00,000 CTC in Pune under the new tax regime for tax year 2026-27, with employer PF on the ₹25,000 ceiling.
| Layer | Yearly | Monthly | What sits inside |
|---|---|---|---|
| CTC | ₹18,00,000 | ₹1,50,000 | Gross salary plus employer PF ₹36,000, EPF admin and EDLI ₹3,000, gratuity provision ₹41,357 |
| Gross salary | ₹17,19,643 | ₹1,43,304 | Basic ₹8,59,821 (50%), HRA and special allowance |
| Deductions | ₹1,72,586 | ₹14,382 | Employee PF ₹36,000, professional tax ₹2,500, TDS ₹1,34,086 |
| Take-home | ₹15,47,057 | ₹1,28,921 | About 86% of CTC |
Is an offer letter the same as an appointment letter?
No. An offer letter invites the candidate to join on stated terms. An appointment letter confirms the employment itself, and since 21 November 2025 the OSH Code requires one for every employee.
| Offer letter | Appointment letter | |
|---|---|---|
| When | Before joining | On joining |
| Legal status | Conditional proposal, often subject to background checks | Mandatory for every employee under OSH Code s.6(1)(f) |
| What it covers | Role, CTC, joining date, conditions | Designation, wages, category of employment and other terms in the prescribed format |
| Under an EOR | Issued by the EOR once you approve the hire | Issued by the EOR as legal employer |
What is the difference between a relieving letter and an experience letter?
A relieving letter confirms the employee has been released from duties on a given date. An experience letter confirms what they did and for how long. New employers in India usually ask for both.
| Relieving letter | Experience letter | |
|---|---|---|
| Confirms | Resignation accepted and duties handed over | Role, tenure and sometimes conduct |
| Issued | On the last working day, after clearance | With or after the relieving letter |
| Used for | Joining the next employer, proving notice was served | Future applications, visas, background checks |
| Linked to | Notice period and full and final settlement | Offboarding records |
Which foreign company office can do what in India?
Only a branch office or project office can earn money in India. A liaison office is a representative post funded from abroad. All three are approved through an AD Category-I bank under the RBI’s Master Direction, and none of them employs people the way an EOR can on day one.
| Liaison office | Branch office | Project office | |
|---|---|---|---|
| Can earn income in India | No | Yes, in RBI-permitted activities | Yes, for the specific project |
| Parent track record | Profits in the last 3 years | Profits in the last 5 years | A contract with an Indian company |
| Minimum parent net worth | USD 50,000 | USD 100,000 | Not specified |
| Validity | Usually 3 years, extendable | Ongoing | Life of the project |
| Tax | No taxable income | 35% plus surcharge and cess as a foreign company | Taxed as a foreign company on project profits |
How do the old and new tax regimes compare for salaried employees?
The new regime is the default and suits most salaries up to about ₹12.75 lakh, which pay no tax at all. The old regime only wins when deductions such as HRA, 80C and 80D are large. Employees choose each year through their employer.
| New regime (default) | Old regime | |
|---|---|---|
| Slabs | Nil to ₹4 lakh, then 5% steps to 30% above ₹24 lakh | Nil to ₹2.5 lakh, 5%, 20%, 30% above ₹10 lakh |
| Standard deduction | ₹75,000 | ₹50,000 |
| Tax-free up to | ₹12 lakh (₹12.75 lakh for salaried) | ₹5 lakh |
| HRA, LTA, 80C, 80D | Not available | Available |
| Employer NPS deduction | Up to 14% of salary | Up to 10% of salary |
| Surcharge cap | 25% | 37% |
How is an employee different from an independent contractor in India?
Control and integration decide it, not the label on the contract. If you set the hours, supervise the method and make the person part of your team, Indian authorities can treat an independent contractor as an employee, with back-dated PF, gratuity and tax.
| Employee | Independent contractor | |
|---|---|---|
| Control | You direct what, when and how | Controls own method and schedule |
| Tax | TDS on salary under s.392 of the Income-tax Act, 2025 | TDS on fees under s.393(1), or none if paid from abroad |
| Social security | EPF, ESI, gratuity apply | None, unless covered as a gig or platform worker |
| Labour Codes | Apply in full | Do not apply |
| Main risk | Compliance cost | Misclassification: back dues, interest and penalties |
What is the difference between the automatic and government routes for FDI?
Under the automatic route you invest first and report to the RBI afterwards. Under the government route you need approval before the money moves. IT, ITeS and most services sit in the automatic route at up to 100%, which is why a wholly owned subsidiary is usually straightforward.
| Automatic route | Government route | |
|---|---|---|
| Prior approval | Not needed | Needed from the government |
| Typical use | IT, ITeS and most services, up to 100% | Sectors or stake sizes the FDI policy reserves for approval |
| Land-border investors | Only for non-controlling stakes up to 10% (since March 2026) | All other land-border investments (Press Note 3) |
| After the money lands | Report on FIRMS through FC-GPR within 30 days of allotment | Same reporting, plus approval conditions |
What do people ask about India employment terms?
What is the difference between an EOR and a PEO in India?
An employer of record is the legal employer of your India team through its own Indian entity, so you need no entity of your own. A PEO co-manages HR and payroll for a company that already has an Indian entity, and that entity stays the legal employer.
What changed in Indian employment law in 2025 and 2026?
The four Labour Codes took effect on 21 November 2025 and central rules followed on 8 May 2026. The Income-tax Act, 2025 started on 1 April 2026, and the EPF wage ceiling rose to ₹25,000 a month on 17 September 2026.
What does an employer pay on top of salary in India?
Usually 12% employer EPF on basic wages (₹3,000 a month at the ₹25,000 ceiling), small EDLI and admin charges, a gratuity provision of about 4.81% of basic and, where wages are ₹21,000 a month or less, 3.25% ESI.
Do the Labour Codes apply if you hire through an employer of record?
Yes. The EOR is the legal employer, so it applies the codes: written appointment letters, the 50% wage rule, final wages within two working days and gratuity for fixed-term staff after one year.
Is CTC the same as take-home salary in India?
No. CTC includes the employer’s own costs, such as employer PF and gratuity. Take-home pay is gross salary minus employee PF, professional tax and TDS. On an ₹18 lakh CTC in Pune, take-home is about ₹1,28,900 a month, roughly 86% of CTC.
How often is this glossary updated?
Every entry is checked against primary sources each month and again whenever a gazette notification changes a rate, threshold or form. The review date at the top of the page shows the last full pass.
How do we keep 170 definitions accurate?
- Code on Wages, 2019
- Industrial Relations Code, 2020
- Code on Social Security, 2020
- OSH Code, 2020
- Income-tax Act, 2025
- DPDP Act, 2023
- Companies Act, 2013
- FEMA, 1999
- IGST Act, 2017
Every definition starts from the primary source: the EPFO and ESIC for social security, the Ministry of Labour and Employment for the Labour Codes, the Income Tax Department for TDS and residency, the Ministry of Corporate Affairs for company law, the Reserve Bank of India for FEMA and India Code for the statutes.
Each page keeps an internal fact-check log. A chartered accountant reviews every rate, threshold, section and form number before it goes live, and the full set is re-checked monthly.
Our content methodology and editorial policy explain how we research, review and correct what we publish.
VV
Vaibhavi VaidyaChief Client-Success Officer, Remunance (author)
RV
Ranjana VaidyaCEO and Chartered Accountant, Remunance (compliance reviewer)
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