6 Payroll Compliance Changes Indian Employers Must Act On Now

New Delhi, June 2026 - India's payroll compliance landscape has changed more significantly in the past six months than in the previous six decades. All four national Labour Codes - Code on Wages, Code on Social Security, Industrial Relations Code, and Occupational Safety, Health and Working Conditions Code - came into effect on November 21, 2025, consolidating 29 separate central labour laws into a unified framework. Alongside these, the Income Tax Act 2025 replaced the Income Tax Act of 1961 from April 1, 2026. For HR leaders, CFOs, and payroll professionals, non-compliance now carries penalties up to Rs. 3,00,000 and imprisonment for repeat violations.

TankhaPay, India's payroll and HR compliance platform, outlines six critical changes every Indian employer must address immediately.

Read Full Article -: https://www.tankhapay.com/blog/payroll-compliance-checklist/

1. The 50% Basic Salary Rule
Under the Code on Wages, basic salary including Dearness Allowance must now account for at least 50% of an employee's total CTC. The downstream impact is substantial: EPF contributions rise on the revised wage base, ESI eligibility shifts to cover more employees, and gratuity and overtime liabilities increase. KPMG India estimates this could raise statutory costs by 5 to 15% for organisations that ran aggressive allowance-heavy pay structures under the old framework. Employers must audit and restructure compensation structures before processing the next payroll cycle.

2. Income Tax Act 2025: New Forms, New TDS Rules
Payroll systems must now reflect Section 392(1) of the Income Tax Act 2025 for every salary paid from April 2026. The governing principle is that the date of payment determines which Act applies, not the period the salary covers. The Income Tax Rules 2026 rename every TDS form currently in use - Form 24Q and Form 16 generation must adhere to revised formats, and updated Form 16 must be distributed to all employees by June 15, 2026.

3. Full and Final Settlement in 2 Working Days
Under the New Wage Code, employers must settle all wages payable on separation within two working days of an employee's exit. Gratuity, leave encashment, and reimbursements must follow as soon as practicable. Manual F&F processes that previously ran over two to four weeks no longer meet the legal standard. Automated workflows integrated with HRMS systems are now a compliance necessity, not an efficiency choice.

4. Mandatory Digital Record-Keeping
Employers must now maintain fully digitised records covering employee wages, attendance, PF/ESI/LWF contributions, payslips, and statutory registers, with regulatory authorities conducting digital inspections in real time. Paper-based registers no longer satisfy the inspection standard. Non-compliance at this level attracts the highest penalty tier under the new framework.

5. Fixed-Term Employee Benefits Revised
Fixed-term employees are now entitled to all statutory benefits proportionate to their tenure, including gratuity eligibility after just one year of service instead of the earlier five-year threshold. Businesses with project-based, seasonal, or contract workforces need to reassess total benefit liabilities. The cost impact on short-cycle hiring models is material and requires immediate budget revision.

6. Gig and Platform Workers Now Covered
The Code on Social Security expands coverage to gig and platform workers, requiring registration on the centralised social security portal where applicable. Companies engaging freelancers, delivery partners, or platform-based workers as part of their workforce structure need to evaluate classification and registration obligations under this provision.

Read Our Related Blog -:

Payroll Challenges - https://www.tankhapay.com/blog/payroll-challenges-businesses-face/
Payroll Management - https://www.tankhapay.com/payroll/payroll-management-system

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TankhaPay is India's payroll, HR, and compliance platform helping businesses of all sizes manage statutory compliance, payroll processing, and workforce management. From automated TDS calculation to statutory register maintenance across multiple locations, TankhaPay ensures Indian employers stay compliant as the regulatory landscape evolves.

This release was published on openPR.