Payroll Services for UK Companies in India
The United Kingdom is one of India's top five foreign direct investment sources, with British companies operating across sectors including financial services, technology, pharmaceuticals, and manufacturing. UK businesses setting up in India — whether through a wholly-owned subsidiary, a branch office, or a liaison office — must establish a fully compliant Indian payroll from the first day they hire local staff.
Indian payroll operates on a fundamentally different model from the UK's PAYE (Pay As You Earn) system. While UK employers deduct income tax and National Insurance Contributions (NICs) through HMRC's Real Time Information (RTI) system, Indian payroll requires managing multiple statutory contributions — Employees' Provident Fund (EPF), Employee State Insurance (ESIC), Professional Tax, Tax Deducted at Source (TDS), gratuity, and Labour Welfare Fund — each governed by separate legislation with distinct registration, filing, and payment deadlines.
India's payroll landscape was fundamentally reshaped in November 2025 when the four new Labour Codes came into effect. These consolidated 29 legacy labour laws and introduced the mandatory 50% basic pay rule, expanded social security coverage to gig and platform workers, and imposed stricter digital record-keeping and faster final settlement requirements. For UK companies accustomed to HMRC's structured compliance framework, India's multi-layered payroll system demands local expertise.
BeaconFiling provides comprehensive payroll processing services specifically designed for UK-owned Indian entities, ensuring seamless compliance across all statutory requirements.
How the India-UK DTAA Affects Payroll
The India-UK Double Taxation Avoidance Agreement, signed in 1993 with a 2012 protocol, governs the taxation of employment income and cross-border payroll arrangements between the two countries.
Employment Income Taxation (Article 16)
Under the DTAA, salaries and wages are taxable in the country where employment is exercised. UK nationals working in India are subject to Indian income tax on their India-sourced salary at progressive rates (5% to 30% plus surcharge and cess). A short-stay exemption applies if the employee is present in India for fewer than 183 days in the fiscal year, the remuneration is paid by a UK-resident employer, and the cost is not borne by a permanent establishment in India.
Fees for Technical Services (FTS)
When UK parent companies charge Indian subsidiaries for payroll management, shared HR services, or management fees, these payments may be classified as Fees for Technical Services (FTS) under Article 13 of the India-UK DTAA. The withholding tax on FTS is capped at 15% under the treaty — lower than India's domestic rate of 20% (plus surcharge and cess). To claim the reduced rate, the UK entity must furnish a valid Tax Residency Certificate (TRC) from HMRC and the Indian entity must file Form 10F.
India-UK Social Security Coordination
India and the UK signed a Social Security Agreement in 1996, which provides limited relief from dual social security contributions. Under this arrangement, UK employees deployed to India on short-term assignments (typically up to 36-60 months) may be exempt from Indian EPF contributions if they continue contributing to the UK's National Insurance system and hold a Certificate of Coverage. This is a significant advantage over countries like the US, which do not have such an agreement with India.
Shadow Payroll for UK Expatriates
UK companies that keep expatriates on the UK payroll while they work in India must maintain a shadow payroll in India. This involves calculating Indian TDS on the India-attributable portion of total compensation (including UK benefits, pension contributions, and bonuses), depositing TDS with the Indian tax authorities, and issuing Form 16 to the employee. The UK employer can then claim credit for Indian taxes paid against the employee's UK tax liability.
Document Requirements from the UK
The UK is a signatory to the Hague Apostille Convention, simplifying document authentication for Indian filings.
Documents for Payroll Setup
- Certificate of Incorporation of the UK parent — apostilled copy for entity verification during EPF and ESIC registration
- Board Resolution authorizing appointment of an Indian payroll service provider — notarized and apostilled
- PAN and TAN of the Indian entity — mandatory before first salary disbursement
- Intercompany service agreement covering payroll recharges — essential for transfer pricing compliance, must detail cost allocation and arm's length methodology
- Employee details: offer letters, PAN cards, Aadhaar numbers, bank account details, and previous employer Form 16 (if applicable)
- Certificate of Coverage from HMRC (for UK expatriates seeking EPF exemption under the India-UK SSA)
Ongoing Documentation
- Tax Residency Certificate (TRC) from HMRC — renewed annually for DTAA benefit claims on intercompany recharges
- Form 10F — self-declaration for Indian tax authorities
- Digital Signature Certificate (DSC) — for authorized signatories filing EPF, ESIC, and TDS returns
- NI contribution records for UK expatriates — to support Certificate of Coverage applications under the SSA
Step-by-Step Payroll Setup Process
Here is BeaconFiling's structured process for setting up payroll for UK-owned Indian entities:
Step 1: Statutory Registrations
Register with EPFO (EPF establishment code), ESIC (employer code), Income Tax Department (TAN for TDS), and the relevant state authority for Professional Tax. Register under the Shops and Establishment Act in each state where the entity operates. EPF is mandatory for establishments with 20+ employees; ESIC for 10+ employees. Read our blog on setting up payroll from day one.
Step 2: CTC Structure Design
Design salary structures compliant with the new Labour Codes. Basic pay plus DA must be at least 50% of CTC — a shift from the UK's relatively flexible salary structuring. Map UK-style benefits (pension, private health insurance, car allowance) to Indian equivalents where possible. EPF replaces UK workplace pensions, ESIC provides state health insurance for employees earning up to INR 21,000/month, and gratuity is a statutory retirement benefit payable after one year of service for fixed-term employees. Read about salary benchmarks for foreign companies.
Step 3: Monthly Payroll Processing
Calculate gross salary, apply deductions (EPF employee share at 12%, ESIC at 0.75% for eligible employees, TDS per slab rates, Professional Tax per state), compute employer contributions (EPF at 12%, ESIC at 3.25%, LWF per state), and disburse net salary by the 7th of the following month. For UK expatriates, calculate shadow payroll TDS on India-attributable income.
Step 4: Monthly and Quarterly Filings
Deposit TDS by the 7th of the following month. Deposit EPF and ESIC by the 15th — late payments attract 12% interest for EPF and penalties up to INR 3 lakh. File quarterly TDS returns (Form 24Q). File monthly EPF returns (ECR) and ESIC returns. Visit our guides on the EPFO portal and ESIC portal for step-by-step instructions.
Step 5: Year-End Compliance
Issue Form 16 (TDS certificates) by June 15. File annual EPF and ESIC returns. Compute gratuity provisions. For UK parent consolidation, provide payroll cost reports mapped to UK reporting periods (often aligned with the UK tax year running April 6 to April 5). Read about compliance deadlines foreign companies commonly miss.
Timeline & Costs
Setup Timeline
| Activity | Duration |
|---|---|
| PAN and TAN registration | 5-7 business days |
| EPF registration (EPFO portal) | 5-10 business days |
| ESIC registration | 3-5 business days |
| Professional Tax registration | 3-7 business days |
| Shops & Establishment registration | 5-10 business days |
| CTC structure design | 3-5 business days |
| Payroll software configuration | 2-3 business days |
| First payroll run | Within 10 business days of month-end |
Cost Breakdown
| Service | Approximate Cost |
|---|---|
| Payroll setup (one-time) | INR 10,000 - 50,000 (~GBP 95-475) |
| Monthly payroll processing (per employee) | INR 300 - 800/month (~GBP 3-8) |
| Statutory compliance (EPF/ESIC/PT filing) | INR 3,000 - 10,000/month (~GBP 28-95) |
| TDS return filing | INR 2,000 - 5,000/quarter (~GBP 19-47) |
| Expatriate shadow payroll (per expat) | INR 5,000 - 15,000/month (~GBP 47-142) |
| Full managed payroll + HR support | INR 800 - 2,500/employee/month (~GBP 8-24) |
UK companies typically achieve 60-70% cost savings by outsourcing Indian payroll versus building an in-house team, while gaining access to local expertise on the Labour Codes and state-specific regulations.
Common Challenges for UK Companies
PAYE vs. Indian Payroll Model
UK employers are accustomed to HMRC's unified PAYE system where a single RTI submission covers income tax and NICs. India's payroll requires separate registrations, calculations, deposits, and returns for EPF, ESIC, TDS, Professional Tax, and LWF — each with different authorities and deadlines. The administrative burden is significantly higher. Read our blog on hiring in India from the UK.
Tax Year Misalignment
The UK tax year runs April 6 to April 5, while India's financial year runs April 1 to March 31 — a five-day offset that complicates expatriate tax calculations and consolidation reporting. Additionally, quarterly reporting periods differ, creating overlapping compliance windows that require careful calendar management.
National Insurance vs. EPF Coordination
While the India-UK SSA provides some relief from dual contributions, the coordination process requires obtaining Certificates of Coverage from HMRC, maintaining evidence of UK NI contributions, and navigating EPFO's exemption procedures for international workers. Many UK companies find this process bureaucratically complex and time-consuming.
Multi-State Compliance
UK companies with pan-India operations face varying Professional Tax rates, minimum wages, and leave entitlements across Indian states. Unlike the UK's centralized HMRC system, India requires separate state-level registrations and filings, which can be particularly challenging for companies expanding from a single Indian office to multiple locations. See our blog on state-level Labour Welfare Fund requirements.
Gratuity and Final Settlement
Under the new Labour Codes, fixed-term employees qualify for gratuity after just one year of service (reduced from five years). Final wages must be settled within two working days of separation. UK companies accustomed to flexible notice periods and redundancy calculations must adapt to India's statutory framework, which imposes strict timelines and penalties for non-compliance.
Why Choose BeaconFiling
BeaconFiling specializes in payroll services for UK-owned Indian entities. Our team handles salary structure design compliant with the new Labour Codes, monthly payroll processing with all statutory deductions, EPF/ESIC/TDS/PT filings, expatriate shadow payroll for seconded UK employees, and year-end Form 16 generation. We support multi-state payroll and understand the nuances of India-UK SSA coordination for EPF exemptions.
Schedule a free consultation to discuss your Indian subsidiary's payroll requirements, or explore our payroll processing service for a complete overview.