Apprentices Act 1961: NAPS Registration, Stipend, Penalties and Employer Compliance (2026)

Does your establishment employ 30 or more workers? Under the Apprentices Act, 1961, you must engage apprentices in a band of 2.5% to 15% of your total workforce. The September 2025 notification expanded the Act's coverage to nearly every sector of the economy. Non-compliance attracts a penalty of Rs 500 to Rs 1,000 per unfilled apprentice seat per month. Most employers discover this obligation only when the Apprenticeship Adviser's office sends a compliance notice.

Indian SME owners track PF and ESI compliance, minimum wages, and bonus payments. But the Apprentices Act, 1961 is the law most employers ignore until an inspector visits. Following the 2025 amendments, this is no longer an obligation limited to large factories. IT companies, retailers, hospitals, hotels, and financial services firms are all covered.

This guide covers every employer obligation: who must comply, how many apprentices to engage, stipend rates, the NAPS portal registration process, designated vs optional trades, tax treatment, penalties, and a compliance checklist.

Looking for expert help with apprentices act 1961 employer guide NAPS registration compliance India 2026? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.

What Is the Apprentices Act 1961?

The Apprentices Act, 1961 (Act 52 of 1961) regulates the programme of training apprentices in establishments. The Act aims to use the facilities available in industry for practical training and to bridge the gap between theoretical education and workplace skills.

The Act creates a structured framework where:

• Employers provide on-the-job training in designated or optional trades
• Apprentices learn a trade under a registered contract while receiving a stipend
• The government sets curricula, monitors training quality, and partially subsidises stipend costs through NAPS and NATS

The Directorate General of Training (DGT) under the Ministry of Skill Development and Entrepreneurship (MSDE) administers the Act for designated trades. The National Skill Development Corporation (NSDC) handles optional trades.

The September 2025 Expansion: Why This Matters Now

On 3 September 2025, the MSDE issued Notification S.O. 4072(E), replacing the old 1999 schedule of covered industries. The notification aligns the Act's applicability with the National Industrial Classification (NIC), 2008.

What Changed

Before September 2025, the Act largely applied to manufacturing and traditional trades. The new notification pulls nearly every part of the economy into the apprenticeship framework:

• Agriculture and allied activities (NIC Section A)
• Manufacturing (NIC Section C): already covered, now aligned to NIC codes
• IT and computer services (NIC Section J)
• Retail and wholesale trade (NIC Section G)
• Hospitality (NIC Section I)
• Healthcare (NIC Section Q)
• Financial services and insurance (NIC Section K)
• Professional and technical services (NIC Section M)
• Administrative and support services (NIC Section N)

If your establishment operates in any of these sectors and employs 30 or more workers, the Act now applies to you.

The 2025 Amendment Rules

The Apprenticeship (Amendment) Rules, 2025 (G.S.R. 610(E), effective 11 September 2025) introduced several key changes:

• Apprentice engagement band increased from 2.5-10% to 2.5-15% of total workforce
• 5% reservation within the band for fresher apprentices and skill certificate holders
• Degree apprenticeships formally recognised as integrated academic-industry programmes
• Maximum two apprenticeships per individual with a minimum 1-year gap between them, in different trades
• Stipend revision linked to the Consumer Price Index (CPI) for bi-annual automatic adjustments

Who Must Comply?

The 30-Worker Threshold

The Act applies to every establishment in a notified industry that employs 30 or more workers (including contract workers, but excluding existing apprentices).

"Workers" includes:

• Regular employees on payroll
• Contract workers engaged through contractors
• Fixed-term employees
• Workers of any department or division within the establishment

If your establishment crosses 30 workers on any day, the Act applies. There is no turnover threshold or annual averaging.

Establishments Covered After September 2025

After the S.O. 4072(E) notification, virtually every type of establishment is covered:

How Many Apprentices Must You Engage?

The 2.5-15% Band

Every covered establishment must engage apprentices within a band of 2.5% (minimum) to 15% (maximum) of total workforce strength in each financial year.

The 5% Fresher Reservation

Within the apprentice seats, a minimum of 5% must be reserved for fresher apprentices and skill certificate holders. If you cannot fill fresher seats despite reasonable effort, you may fill them with other categories of apprentices after obtaining approval from the Apprenticeship Adviser.

Designated Trades vs Optional Trades

Designated Trades

Designated trades are notified by the Central Government. These are mostly engineering and manufacturing trades with structured curricula designed by the Central Staff Training and Research Institute (CSTARI). There are currently 261 notified designated trades.

Examples: Fitter, Turner, Electrician, Welder, Machinist, Plumber, Carpenter, Wireman, Mechanic (Motor Vehicle), Electronics Mechanic.

Duration: 1 to 3 years depending on the trade. Governed by DGT under the MSDE.

Optional Trades

Optional trades are decided by the employer based on the skills needed in their industry. This gives employers flexibility to create apprenticeship programmes aligned with their business operations.

Examples: Digital Marketing Executive, Data Entry Operator, Customer Service Associate, Retail Sales Associate, Medical Lab Assistant, Food and Beverage Service, Banking Operations.

Duration: 6 months to 3 years (decided by the employer within NSDC guidelines). Governed by NSDC.

Which Should You Choose?

• Designated trades: if your establishment needs workers in traditional engineering or manufacturing roles. Curricula are pre-designed. Apprentices receive a nationally recognised trade certificate.
• Optional trades: if your establishment operates in services, IT, retail, healthcare, or any sector where designated trades do not fit. You design the training plan. Apprentices receive a certificate from NSDC.

Most SMEs in services and IT will use optional trades.

Stipend Rates: What You Must Pay

NAPS Stipend (Designated and Optional Trades)

Following the 36% revision (effective September 2025), minimum monthly stipend rates under the National Apprenticeship Promotion Scheme (NAPS) are:

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Year-wise Progression

• Year 1: Base stipend as per qualification
• Year 2: 10% increase over Year 1
• Year 3: 15% increase over Year 1

NATS Stipend (Graduate and Technician Apprentices)

Under the National Apprenticeship Training Scheme (NATS), effective April 1, 2026:

CPI Linkage

Stipends are now linked to the Consumer Price Index for bi-annual automatic revision. Employers should check the apprenticeshipindia.gov.in portal for the latest applicable rates.

Who Pays What?

The employer pays the full stipend to the apprentice monthly. The government share is reimbursed to the employer via Direct Benefit Transfer after verification on the portal.

NAPS Portal Registration: Step-by-Step

Step 1: Register Your Establishment

Go to apprenticeshipindia.gov.in and select "Register as Establishment."

Documents needed:

• EPFO or ESIC registration number (or LIN: Labour Identification Number)
• Aadhaar-linked company bank account with cancelled cheque
• Authorised signatory details (Aadhaar, PAN, mobile, email)
• Total workforce strength
• List of trades and roles for apprentice engagement

Step 2: Choose Trades and Post Vacancies

After registration, select either designated trades (DGT list) or optional trades (create your own under NSDC categories). Post apprenticeship vacancies on the portal specifying:

• Trade name and code
• Number of seats
• Duration of training
• Stipend offered (minimum as per rules)
• Location of training

Step 3: Source and Select Candidates

Screen applicants through the portal. You can also source candidates from:

• Local Industrial Training Institutes (ITIs) using Candidate IDs
• Polytechnic colleges
• Skill development centres
• Direct walk-in candidates who register on the portal

Step 4: Execute Apprenticeship Contract

Generate the contract on the portal. Both the employer and apprentice sign electronically via Aadhaar-based OTP verification. The contract must specify:

• Trade and duration
• Stipend amount
• Working hours and conditions
• Obligations of both parties

The contract must be registered on the portal within 7 days of the apprentice's joining date.

Step 5: Start Training and File Returns

Once the apprentice joins, maintain training records on the portal. File quarterly progress reports. At the end of the training period, the apprentice appears for a trade test (designated trades) or receives a certificate from NSDC (optional trades).

Apprentice vs Employee: Legal Status

Section 18: An Apprentice Is Not a Worker

Under Section 18 of the Apprentices Act, every apprentice undergoing training is a trainee, not a worker. This means:

What Does Apply

• Health and safety provisions: The Factories Act safety provisions (or equivalent establishment law) apply to apprentices. Employers must provide the same safety equipment and protections as given to regular workers.
• Hours of work: Apprentices follow the same working hours as regular workers in the establishment. No apprentice may be required to work overtime without written approval from the Apprenticeship Adviser.
• Leave: Apprentices are entitled to leave as prescribed (typically 12 days of casual leave per year and public holidays).

Employer Obligations: Complete List

Training Obligations

1. Provide training as per the approved syllabus and curriculum
2. Appoint instructional staff with prescribed qualifications
3. Provide adequate facilities, tools, and materials for training
4. Allow apprentices to attend related instruction (classroom training at ITIs or other centres)
5. Maintain a logbook of training activities

Administrative Obligations

1. Register on apprenticeshipindia.gov.in
2. Execute and register apprenticeship contracts within 7 days of joining
3. Pay stipend on time every month (by the 10th of the following month)
4. File quarterly progress reports on the portal
5. File annual returns to the Apprenticeship Adviser
6. Allow inspections by the Apprenticeship Adviser or authorised officers
7. Issue a certificate of proficiency or completion at the end of the training period

What You Cannot Do

• Require an apprentice to work overtime without the Apprenticeship Adviser's approval
• Employ an apprentice on work not connected to the training programme
• Make piece-rate payments to apprentices
• Include apprentices in output-linked bonus or incentive schemes
• Terminate the contract without following the prescribed procedure (Section 7)

Penalties for Non-Compliance

Section 30: Offences and Penalties

The employer receives a one-month written notice from an authorised officer before penalty proceedings begin. Penalties are imposed by the Apprenticeship Adviser and are recoverable as arrears of land revenue.

Tax Treatment of Apprentice Stipends

For the Employer

• Stipend paid to apprentices is a deductible business expense under Section 37(1) of the Income Tax Act
• No PF, ESI, or bonus liability reduces the total cost of engaging apprentices
• Government reimbursement (25% under NAPS, 50% under NATS) further reduces the effective cost

Section 80JJAA Benefit on Absorption

If you absorb an apprentice as a regular employee after training completion:

• The new employee's salary qualifies for the Section 80JJAA deduction (30% of additional employee cost for 3 consecutive years) if total emoluments are under Rs 25,000 per month and the employee participates in a recognised provident fund
• This creates a combined benefit: subsidised training during apprenticeship + tax deduction on absorption

For the Apprentice

• Stipend received is taxable as income from other sources (since the apprentice is not an employee)
• However, most apprentice stipends fall below the basic exemption limit (Rs 3 lakh under the new regime), so no tax is payable in practice

Cost-Benefit Analysis: An Example

Consider a manufacturing SME with 100 employees engaging 5 apprentices (5% of workforce) under NAPS in an ITI-pass designated trade:

Net annual cost per apprentice: Rs 90,000 (Rs 7,500 per month).

Compare this with a regular entry-level employee at the same gross salary:

Apprenticeship costs 60% less than a regular hire while giving you a trained worker you can absorb after the programme.

Common Employer Mistakes

1. Assuming the Act Does Not Apply

After September 2025, the Act applies to IT companies, retailers, hospitals, CA firms, and virtually every establishment with 30+ workers. "We are not a factory" is no longer a valid excuse.

2. Not Registering on the Portal

Registration on apprenticeshipindia.gov.in is mandatory. Many employers assume they can engage apprentices informally. Without portal registration, the contract is not valid, and you cannot claim the government stipend subsidy.

3. Treating Apprentices as Regular Employees

If you include apprentices in PF, ESI, or bonus calculations, you create an employer-employee relationship. This defeats the purpose of apprenticeship and may trigger labour law obligations you were trying to avoid.

4. Missing the 7-Day Contract Registration Deadline

The apprenticeship contract must be registered on the portal within 7 days of the apprentice joining. Late registration means no government subsidy for the missed period.

5. Using Apprentices as Cheap Labour

The Act requires genuine training. If an apprentice is doing the same work as regular employees without any training component, you risk penalties and the apprentice may claim employee status.

6. Ignoring the 5% Fresher Reservation

At least 5% of your apprentice seats must be reserved for freshers and skill certificate holders. Filling all seats with experienced candidates violates the 2025 amendment.

NAPS vs NATS: Which Scheme to Use?

Use NAPS for ITI-pass apprentices, school-pass apprentices, or optional trade apprentices.

Use NATS for graduate and diploma apprentices in engineering, technology, and professional courses (higher subsidy).

12-Point Compliance Checklist

1. Count your workforce: include all employees, contract workers, and fixed-term staff. If 30 or more, the Act applies.
2. Check your industry: after September 2025, nearly all sectors are covered. Verify your NIC code on the MSDE website.
3. Register on apprenticeshipindia.gov.in with EPFO/ESIC number, bank details, and signatory information.
4. Calculate your apprentice band: minimum 2.5% of total workforce. Reserve 5% of seats for freshers.
5. Choose trades: designated trades (DGT list) or optional trades (create your own under NSDC).
6. Post vacancies on the portal and source candidates from ITIs, colleges, and skill centres.
7. Execute contracts via Aadhaar OTP on the portal within 7 days of each apprentice joining.
8. Pay stipend monthly (minimum as per government rates) and claim NAPS/NATS reimbursement.
9. Appoint instructional staff with prescribed qualifications and create a training plan.
10. File quarterly progress reports on the portal.
11. File annual returns to the Apprenticeship Adviser.
12. Evaluate and certify apprentices at the end of the training period. Consider absorption as regular employees.

Comparison: Apprenticeship Obligation Across Labour Laws

What Happens After the Apprenticeship Ends?

The employer has three options:

1. Absorb the apprentice as a regular employee. This is the government's preferred outcome. You get a trained worker familiar with your operations, and you can claim the Section 80JJAA deduction on absorption.

2. Issue a completion certificate and release the apprentice. The apprentice can seek employment elsewhere or take a second apprenticeship in a different trade (after a 1-year gap).

3. Extend the apprenticeship in a higher-level trade. An ITI-pass apprentice can progress to a technician apprenticeship. This requires a new contract and fresh portal registration.

There is no obligation to absorb the apprentice. However, the government tracks absorption rates, and establishments with poor absorption may face closer scrutiny during inspections.

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Tax Garden manages apprenticeship compliance for SMEs across India. From portal registration and contract execution to stipend disbursement, quarterly returns, and annual filings, our compliance team handles the entire process. Talk to our team about apprenticeship compliance.

Sources: Apprentices Act, 1961 (Act 52 of 1961, indiacode.nic.in); Notification S.O. 4072(E) dated 3 September 2025 (expansion to NIC 2008 sectors, MSDE); Apprenticeship (Amendment) Rules, 2025, G.S.R. 610(E) dated 11 September 2025 (2.5-15% band, 5% fresher reservation, degree apprenticeship, CPI linkage); NAPS stipend revision effective September 2025 (Rs 6,800-12,300, 36% increase, PIB PRID 2131391); NATS stipend revision effective April 1, 2026 (BOAT WR/2026/529, Rs 9,600-12,300); Central Apprenticeship Council recommendation May 2025 (pib.gov.in); Section 18 (trainee status, PF/ESI exclusion, nsdcindia.org FAQ, hyring.com, sgcms.com); Section 30 penalties (indiankanoon.org, lawgist.in, lextechsuite.com); NAPS government share 25% max Rs 1,500 (govtschemesindia.com, tmservices.co.in, egovtschemes.com); NATS 50% DBT (key4comply.com, tankhapay.com, bajajfinserv.in); Portal registration process (apprenticeshipindia.gov.in, relativity.co.in, citizennest.com); Degree apprenticeship and 2-apprenticeship limit (teamlease.com, amlegals.com, indiaemployerforum.org); Section 80JJAA (cleartax.in, bajajfinserv.in, kanakkupillai.com).