An Indian subsidiary hires staff under Indian law on a written appointment letter. Payroll brings income tax deduction under Section 392, provident fund and ESI where thresholds are met, gratuity after the qualifying service, professional tax in some states and compliance with the labour codes, which were reported to have come into force on 21 November 2025. Hong Kong employers should expect differences from home practice: notice and termination rules, statutory benefits, wage payment dates, leave and sexual harassment compliance. Use a written contract with confidentiality and intellectual property clauses and keep an employee handbook.
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Key facts
| Contract | Written appointment letter with role, pay, notice, confidentiality and IP terms |
|---|---|
| Income tax | TDS on salary by the 7th of the following month; Form 16 after year end |
| Provident fund | EPF registration for covered establishments; employer and employee contributions; return by the 15th |
| ESI | Employees below the wage ceiling; contributions by the 15th |
| Gratuity | Payable after the qualifying service period; fixed-term employees may qualify earlier under the codes |
| Labour codes | Wages, Social Security, Industrial Relations, Occupational Safety codes reported in force from 21 November 2025; confirm rules in your state |
| Shops and establishments | State registration, working hours, leave, holidays |
| POSH | Internal committee for sexual harassment complaints for 10 or more employees |
The employment contract
- State the role, place of work, salary components, probation, notice period and termination terms.
- Include confidentiality, intellectual property assignment, and conflict of interest clauses.
- Restrictive covenants after employment are limited in India; a non-compete after the end of employment is generally unenforceable, so rely on confidentiality and non-solicitation drafted carefully.
- Use Indian stamp rules, state shops law and the holidays list in the handbook.
Payroll and statutory deductions
| Item | Rule in outline | Due |
|---|---|---|
| Income tax on salary | Section 392 of the Income-tax Act, 2025; deduct at average rate | 7th of next month; quarterly return |
| EPF | Employer and employee contributions on wages | 15th of next month |
| ESI | For employees below the ceiling | 15th of next month |
| Professional tax | State law, where applicable | Per state schedule |
| Gratuity | On the qualifying period of service | On exit |
| Bonus and leave | As per the applicable code and state law | As per policy and law |
Differences from Hong Kong practice
- Hong Kong's Mandatory Provident Fund is replaced in India by the EPF with a different structure.
- Termination in India often needs notice or pay in lieu and, for larger establishments, extra procedures; check the code for your headcount.
- Working hours, leave and holiday rules come from the state shops law and the codes.
- Indian employees expect a clear title, grade and annual increment cycle; plan compensation accordingly.
Posting Hong Kong staff
For employees sent from Hong Kong, see Hong Kong employees in India and relocating Hong Kong staff.
Cost planning
Budget for salary, employer provident fund and ESI, gratuity, bonus, insurance and recruitment. ₹10 lakh is about HK$83,000 at an indicative ₹12.07 per Hong Kong dollar (15 October 2026 interbank rate; check the live rate before remitting). See the compliance calendar for due dates.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Inland Revenue Department (Hong Kong), Companies Registry (Hong Kong) and the Ministry of External Affairs (India).
Frequently asked questions
Do I need an employment contract in India?
Yes, a written appointment letter is standard and needed for clarity on pay, notice and confidentiality.
Is provident fund mandatory?
For covered establishments, yes. Check the thresholds and apply for registration early.
Who deducts income tax on salary?
The employer, under Section 392 of the Income-tax Act, 2025, depositing by the 7th of the following month.
Can I include a non-compete clause?
A post-employment non-compete is generally not enforceable in India, so use confidentiality and carefully drafted non-solicitation terms.
Have the labour codes taken effect?
They were reported to be in force from 21 November 2025. Confirm the rules and state notifications that apply to you.
Do I need a sexual harassment committee?
Employers with 10 or more employees must form an Internal Committee under the POSH Act.
How does this differ from Hong Kong?
Provident fund, termination, leave and wage-payment rules differ. Use Indian counsel for the handbook and contracts.
Related guides
Hong Kong Employees in India: Salary Tax, the MPF Position and EPF for International Workers
What a Hong Kong employer must plan for staff in India: Indian salary tax and the treaty day-count test, Hong Kong salaries tax, MPF, EPF for international workers because there is no social security agreement, and secondment contracts.
Read the guide →Moving Hong Kong Employees to India: Employment Visa, Registration with FRRO, Dependants and Clearance
How to relocate Hong Kong staff to an Indian subsidiary: employment and business visa categories, the salary floor, FRRO registration within 14 days for stays over 180 days, dependants, security clearance for land-border nationals, tax and exit.
Read the guide →Compliance Calendar: Indian Deadlines and the Hong Kong Filings They Feed
A month-by-month compliance calendar for an Indian subsidiary of a Hong Kong parent: TDS, GST, PF and ESI, advance tax, AGM, AOC-4, MGT-7, FLA return, approval conditions and the Hong Kong-side annual return and profits tax filings.
Read the guide →Twelve Common Mistakes Hong Kong Companies Make in India and How to Avoid Them
The most common mistakes of Hong Kong companies entering India: skipping Press Note 3, thin hub structures, late FEMA filings, weak treaty paperwork, secondment tax errors, stale apostilles, unstamped contracts and ignoring the Indian calendar.
Read the guide →Sources
Last updated 26 October 2026. General information only, not legal or tax advice. Indian and Hong Kong rules change often; confirm current requirements before acting.