Employee Benefits in India: A Complete Guide 2025

Employee benefits in India are shaped by a blend of statutory mandates and evolving market practices.

The foundation is built on legally required benefits such as the Employees’ Provident Fund (EPF), Employees’ State Insurance (ESI), gratuity payments, and paid leave entitlements, which are aimed at providing social security.

Over time, many employers—especially multinationals and tech firms—have expanded their offerings to include health insurance for families, performance bonuses, flexible work arrangements, wellness programs, and even stock options.

Startups and larger firms alike are recognizing the strategic value of benefits in attracting and retaining top talent in a competitive job market. 

However, benefits remain inconsistent across sectors, with blue-collar and informal workers often left with minimal protection despite labor code reforms.

In this climate, progressive companies that invest in inclusive benefits not only gain reputational advantage but also help reshape the broader conversation around employee well-being in modern India.

In this guide, I’ll delve into employee benefits in France, including eligibility, what’s mandatory, and additional benefits to help your company stand out.

Who Qualifies for Statutory Benefits in India?

In India, statutory employee benefits typically cover individuals with standard employment contracts, including full-time, part-time, and fixed-term roles. 

These employees are integrated into India's social security system, which provides a range of benefits such as health insurance, pension schemes, and unemployment insurance. 

Generally, benefits begin from the first day of employment if the employee's income exceeds a specific threshold, ensuring immediate access to essential protections.

Who Is Excluded?

Certain worker categories are excluded from statutory benefits:

• Freelancers and Contractors: These individuals typically do not receive statutory benefits.
• Low-Income Workers: Those earning below a national threshold may not qualify for full benefits.
• Interns and Agency Temps: Eligibility may be conditional or limited to specific benefits.

For more detailed information on statutory benefit eligibility, you can visit the Ministry of Labour & Employment, which provides comprehensive guidelines and updates.

Statutory Employee Benefits in India

Here’s a concise overview of the key statutory employee benefits mandated by Indian labor laws, along with eligibility criteria and contribution requirements:

Employees’ provident fund (EPF)

A long-term retirement savings scheme that requires equal contributions from employers and employees to support financial security post-employment.

• Applicability: Mandatory for establishments with 20+ employees.
• Eligibility: Employees earning up to ₹15,000/month (higher-wage employees can voluntarily opt in).
• Contribution:
  • Employer: 12% of basic wages + DA.
  • Employee: 12% of basic wages + DA.
  • Part of the employer’s 12% goes to the Employees’ Pension Scheme (EPS): 8.33% to EPS, rest to EPF.

Employees’ state insurance (ESI)

A social insurance scheme providing medical, disability, maternity, and unemployment benefits to workers earning below a certain threshold.

• Applicability: For establishments with 10+ employees (in some states, 20+), where wages ≤ ₹21,000/month.
• Contribution:
  • Employer: 3.25% of gross wages.
  • Employee: 0.75% of gross wages.
• Benefits: Medical care, sickness benefits, maternity leave, disability, and dependent benefits.

Gratuity

A lump sum paid to employees as a token of appreciation for long-term service, due after five years of continuous employment.

• Applicability: Establishments with 10+ employees.
• Eligibility: Employees with 5+ years of continuous service.
• Payout: 15 days’ wages for every completed year of service.
• Formula: (Last drawn salary × 15 × years of service) / 26
• Tax-Free Limit: Up to ₹20 lakhs under current Income Tax law.

Bonus (payment of bonus act)

A statutory annual payout to eligible employees based on profits or productivity, meant to promote financial participation in organizational success.

• Applicability: Establishments with 20+ employees.
• Eligibility: Employees earning ≤ ₹21,000/month.
• Bonus Rate: 8.33% to 20% of annual salary.
• Minimum bonus: Statutory requirement, even if the employer makes no profit.

Maternity benefit

A legally mandated paid leave period for pregnant employees to ensure health and recovery during and after childbirth.

• Applicability: All establishments employing 10+ people.
• Entitlement: 26 weeks of paid leave for first two children; 12 weeks thereafter.
• Additional Benefit: 1 month of leave in case of complications or illness.

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Leave entitlements

Legally prescribed categories of paid time off—earned, casual, and sick leave—plus public holidays, to support work-life balance and health. Governed by state-specific Shops & Establishments Acts, but typically include:

• Earned Leave (EL): 12–18 days/year.
• Casual Leave (CL): 7–10 days/year.
• Sick Leave (SL): 7–12 days/year.
• Public holidays: Around 10–14 days/year depending on state.

Notice period, severance, and termination

• Governed by the Industrial Disputes Act or local labor laws.
• Workers terminated for redundancy are entitled to compensation: 15 days’ wages per year of service.

Notes on enforcement and coverage

Despite comprehensive laws, enforcement is weak in the informal sector, which employs over 85% of India’s workforce.

Many startups and tech companies offer benefits beyond the statutory minimum, while traditional and small enterprises often stick to only the legal requirements.

Recent Labor Code reforms (not yet fully implemented nationwide) aim to streamline compliance and expand social security coverage.

Leave Entitlements in India

In India, leave entitlements cover various types of leave, each protected by law to support different aspects of an employee's personal and professional life.

These policies are designed to ensure employees have necessary time off for rest, personal needs, and family care.

• Annual paid vacation [वार्षिक अवकाश]: Employees earn 1 day of leave for every 20 days worked, totaling 15–18 days annually. It's intended for rest and recuperation, and is administered by the employer.
• Public holidays [सार्वजनिक छुट्टियाँ]: Varies by state, but typically includes 10-14 paid holidays per year. They allow employees to observe national and cultural events, with leave managed by employers.
• Sick leave [बीमार छुट्टी]: Usually offers 7 days per year for health-related absences. It's crucial for recuperation and is often compensated by the employer.
• Maternity leave [मातृत्व अवकाश]: Provides 26 weeks of paid leave for the first two children and 12 weeks for subsequent ones, supporting family and child health. It's a statutory requirement managed by employers.
• Paternity leave [पितृत्व अवकाश]: Typically offers up to 15 days to support new fathers, though not uniformly mandated across all sectors.
• Parental leave [अभिभावक अवकाश]: Limited and mostly at the discretion of employers, intended for broader family care responsibilities.

Common and Fringer Employee Benefits in India

In India, while not mandatory, many employers offer a range of additional benefits to enhance employee satisfaction and retention.

These benefits, which include private pension plans, supplemental health insurance, and performance bonuses, play a significant role in attracting talent and improving workplace morale.

• Private health insurance: Offered by many employers, especially in urban and white-collar sectors, to provide broader medical coverage than public schemes; often includes family coverage and cashless hospitalization at private facilities.
• Superannuation fund (SAF): A voluntary employer-sponsored retirement fund in addition to EPF, typically managed by an insurer (e.g., LIC, ICICI Prudential). Contributions up to ₹1.5 lakh/year by the employer are tax-free under Section 10(13). Any excess is taxable as a perquisite. On retirement, the commuted (lump sum) portion is tax-free; pension payouts are taxable as income.
• Meal cards or vouchers: Tax-advantaged benefits (up to ₹50 per meal) provided via prepaid cards like Sodexo or Zeta, commonly used in place of in-house cafeterias and to support employees’ daily food expenses.
• Transport allowance: Structured to reduce taxable income, this allowance supports commuting costs and is popular in congested metro areas; companies may also provide shuttle services or fuel reimbursements.
• Work-from-home support: Post-pandemic, many companies offer stipends for internet, office furniture, or utilities to enhance productivity and comfort while working remotely.
• Flexible working hours: An increasingly common perk in tech and knowledge industries, flexible schedules support work-life balance and are valued for reducing burnout and enhancing autonomy.
• Education and upskilling reimbursements: Employers often sponsor certifications, online courses, or advanced degrees to retain talent and foster career growth, particularly in IT, finance, and consulting roles.
• Wellness programs: These include gym memberships, mental health counseling, meditation sessions, and wellness apps—designed to improve overall employee wellbeing and reduce stress.
• Employee stock options (ESOPs): Popular in startups and tech firms, ESOPs offer employees a stake in the company’s growth and are used as a long-term retention and reward tool.
• Club memberships and concierge services: Fringe benefits for senior executives may include golf club memberships, personal concierge services, or company-leased vehicles as part of lifestyle enhancement.

How Do Benefits Vary Between States In India?

India is a vast, populous country operating under a quasi-federal system, where labor laws fall under the Concurrent List—meaning both the Central Government and State Governments can legislate on them.

While statutory benefits like EPF, ESI, gratuity, and maternity leave are regulated nationally, certain aspects like minimum wages, shop and establishment rules, and state welfare schemes vary significantly across states.

Key areas of variation by state

Minimum wages

Vary by State, Skill Level, and Industry: States notify different minimum wages for unskilled, semi-skilled, skilled, and highly skilled workers.

For example, Delhi and Kerala tend to have some of the highest minimum wages, while Bihar or Madhya Pradesh may offer lower thresholds.

Leave entitlements (shops and establishments acts)

Each state enforces its own version of the Shops and Establishments Act, regulating leave policies for private sector employees.

For instance, the number of public holidays, sick leave entitlements, and carry-forward rules for earned leave vary. Maharashtra may offer 21 days of earned leave, while Karnataka offers 18.

State-specific welfare boards

Many states like Tamil Nadu, Kerala, and Maharashtra have welfare boards for unorganized sector workers (e.g., construction, textile, and domestic workers), offering pensions, education scholarships, or health coverage. These benefits are not available uniformly across the country.

Professional tax

States like West Bengal, Maharashtra, and Karnataka levy a professional tax, deducted monthly from salaries based on income slabs. The maximum is capped at ₹2,500 per year but varies in structure across states.

Labour compliance and enforcement

Implementation rigor can differ. Gujarat and Karnataka are known for being industry-friendly with streamlined labor compliance, while enforcement in some northern states may be weaker or less consistent.

ESI dispensary and hospital coverage

While ESI is centrally governed, availability and quality of ESI medical facilities depend on the local infrastructure in each state. Urban areas in Tamil Nadu or Maharashtra tend to have better ESI facilities than remote regions in the northeast.

Impact on employers and workers

For national employers, this diversity means navigating state-specific registrations, compliance filings, and benefit structures, particularly for blue-collar or gig workers.

For employees, the real value of their benefits—such as healthcare access or leave policies—can differ substantially based on where they live and work.

It also reinforces a broader inequality where workers in economically advanced states gain access to better protections and public welfare.

How Employee Benefits Are Taxed In India

Here's a structured overview of how various statutory and non-statutory employee benefits are taxed in India, helping employers and employees stay compliant and tax-efficient.

Statutory benefits–taxation overview

• Provident Fund (EPF)
  • Employer’s contribution up to 12% of salary is tax-exempt.
  • Contributions beyond 12% are taxable.
    Employee contributions qualify for Section 80C deduction (up to ₹1.5 lakh/year).
  • Interest exceeding 9.5% per annum is taxable.
• Employees’ State Insurance (ESI)
  • Contributions are exempt.
  • Benefits received (e.g., medical, disability) are also tax-free.
• Gratuity
  • Tax-free up to ₹20 lakhs (lifetime limit for private sector employees).
  • Amounts above ₹20 lakhs are taxable.
• Bonus
  • Treated as part of salary; fully taxable.
• Leave Encashment
  • While in service: fully taxable.
    On retirement/resignation: tax-free up to ₹3 lakhs under Section 10(10AA).
• Maternity Benefits
  • Fully tax-exempt under Section 10.

Fringe / non-mandatory benefits – taxation rules

• Health Insurance (Employer-paid)
  • Group premium paid by employer: tax-exempt.
  • Top-up or personal plans may be taxable perquisites.
• Meal Vouchers / Food Coupons
  • Exempt up to ₹50 per meal (~₹2,200/month).
  • Amounts beyond this are taxable
• Transport Allowance
  • Generally taxable post-2018.
  • Only exempt for specially-abled employees (₹3,200/month).
• Mobile / Internet Reimbursements
  • Tax-free if bills are submitted and business-related.
  • Taxable if paid as a flat allowance.
• Work-from-Home Allowance
  • Tax-free if reimbursed with actual bills (e.g., electricity).
  • Lump-sum stipends may be taxed as salary.
• Gift Vouchers / Hampers
  • Exempt up to ₹5,000/year.
  • Value above ₹5,000 is taxable as a perquisite.
• Company Car / Driver
  • Taxable perquisite if used for both official and personal purposes.
  • Valuation as per prescribed Income Tax Rules.
• Employee Stock Options (ESOPs)
  • Taxed twice:
    • At exercise: taxed as perquisite (FMV – exercise price).
    • At sale: taxed as capital gains.

Deductions and tax optimization tips

• Section 80C Deductions
  • Includes EPF, PPF, life insurance, ELSS, and tuition fees.
  • Maximum deduction: ₹1.5 lakh/year.
• Section 10 Exemptions
  • Cover gratuity, medical reimbursement (limited scenarios), and LTA.
• Flexible Benefit Plans (FBPs)
  • Optimize take-home pay by restructuring salary (e.g., food, fuel, internet).
  • Require proper documentation and proof for exemption.

Compliance reminders

• Employers must report all taxable perquisites in Form 16.
• Failure to report or incorrect valuation may result in penalties.
• Employees should retain proof of expenses for claims and audits.

How to Set Up and Manage Employee Benefits in India

Setting up and managing employee benefits in India involves a strategic approach to ensure compliance, employee satisfaction, and competitiveness. Here are the key steps a company should take:

1. Understand legal requirements

Begin by familiarizing yourself with India’s core labor laws, including the EPF Act, ESI Act, Payment of Gratuity Act, Maternity Benefit Act, and relevant Shops and Establishments Acts (state-specific). You'll need to:

• Determine applicability based on company size (e.g., EPF applies to establishments with 20+ employees).
  Classify employees as eligible vs. non-eligible for certain schemes (e.g., ESI covers those earning ₹21,000/month or less).
• Register with government portals like the EPFO, ESIC, Labour Department, and Professional Tax authorities (state-level).

Tip: Don’t wait until payroll—register your organization and start deductions from the first month of employment.

2. Design a competitive benefits package

Beyond compliance, build a compelling total rewards offering by:

• Benchmarking against industry peers (especially in IT, finance, and startups).
• Offering group health insurance (including dependents), accident cover, and term life insurance.
• Including non-statutory perks like meal cards, wellness stipends, ESOPs, or education allowances.
• Integrating flexible benefits or cafeteria-style plans for employee choice.

Tip: Companies in metro cities often attract talent through perks like work-from-home support, mental health resources, and upskilling programs.

3. Partner with service providers

For smooth administration:

• Work with EOR of record services in India, global payroll services, or HRMS platforms (e.g., RazorpayX Payroll, Zoho People, Keka) for EPF/ESI automation.
• Engage insurance brokers or aggregators (e.g., Plum, Onsurity, Policybazaar for Work) for group medical and wellness benefits.
• Use fintech solutions for meal cards, travel reimbursements, and tax optimization tools.

Tip: Ensure all service providers are aligned with your payroll cycle and statutory deadlines (e.g., EPF due by 15th of the month).

4. Maintain documentation and compliance

Keep detailed records for all statutory and optional benefits:

• Maintain Form 3A and 6A for EPF, Form 5 & 10 for ESI, and gratuity records.
• Comply with annual return filings, labor audits, and state-specific labor welfare fund submissions.
• Retain employee declarations, nomination forms, and digital records of enrollment and payouts.

Tip: Also track leave balances, bonus calculations, and performance-linked incentive histories.

5. Communicate and educate employees

Make benefits transparent and accessible:

• Create a benefits handbook or portal explaining entitlements and enrollment steps.
• Conduct onboarding sessions and Q&As to explain things like EPF withdrawal, insurance claims, or ESOP vesting.
• Share updates on regulatory changes or enhancements to your benefits program.

Tip: Regular communication builds trust and improves utilization—many employees are unaware of the full extent of what’s offered.

6. Monitor, Review, and Evolve

Continuously evaluate the effectiveness and ROI of your benefits program by:

• Conducting employee surveys on satisfaction and unmet needs.
• Reviewing usage reports (e.g., medical claims, leave trends).
• Staying updated on labor reforms—India is moving toward implementing 4 new labor codes that could impact wage structures and benefits.

Tip: Annual or biannual reviews help align benefits with company growth, budget, and talent priorities.

Get Support Setting Up Benefits in India

Understanding employee benefits in India is crucial for aligning with legal requirements and meeting employee expectations.

Offering the right benefits helps attract and retain top talent, giving your business a competitive edge. 

Complying with statutory benefits, while also offering additional perks, shows your commitment to your team’s well-being and job satisfaction.

It’s not just about ticking boxes; it’s about creating a workplace where employees feel valued and motivated.

Partnering with an Employer of Record is the easiest way to manage international benefits and ensure compliance. Here’s a list of India EOR providers to help you get started.

10 Best Indian Employer of Record Service Shortlist

Here's my pick of the 10 best software from the 10 tools reviewed.

1. 1. Deel — Best for local health benefits
2. 2. Borderless AI — Best AI-driven EOR platform
3. 3. RemoFirst — Best for budget-conscious remote team expansion
4. 4. Omnipresent — Best for labor law compliance
5. 5. Native Teams — Best for tax compliance support
6. 6. Skuad — Best for hiring and paying talent in India
7. 7. ANSR — Best for its talent network
8. 8. Atlas HXM — Best for enterprise organizations
9. 9. Remunance — Best for hiring without a local entity
10. 10. Globalization Partners — Best for employee onboarding

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