India payroll compliance explained: PF, ESI, Professional Tax and TDS

Indian payroll has four recurring statutory deductions: Provident Fund (12% of PF wages, which are capped at ₹25,000 a month from 17 September 2026), ESI (employee state insurance for wages up to ₹21,000 a month), Professional Tax (a state levy capped at ₹2,500 a year per person) and TDS on salary under Section 392 of the Income-tax Act, 2025. Each has its own rate, deposit date and return.

Provident Fund (PF)

The employee contributes 12% of PF wages (basic plus dearness allowance). The employer also contributes 12%, of which 8.33% goes to the Employees’ Pension Scheme and 3.67% to the Employees’ Provident Fund, plus 0.5% each for EDLI insurance and administration charges. Contribution is mandatory for employees whose monthly wages are within the statutory wage ceiling. That ceiling was ₹15,000 for years and was raised to ₹25,000 with effect from 17 September 2026 (notification S.O. 5109(E)); see our separate guide to the change.

PF is deposited by the 15th of the following month, together with the Electronic Challan cum Return (ECR). Each member needs a Universal Account Number (UAN), so a missing UAN on the employee record is one of the most common reasons an ECR upload fails.

Employees’ State Insurance (ESI)

ESI covers employees whose monthly wages are up to ₹21,000 (₹25,000 for persons with disabilities). The employee contributes 0.75% of gross wages and the employer 3.25%. It is also deposited by the 15th of the following month.

Eligibility is tested on the wages actually payable for the period, and once an employee is covered for a contribution period they remain covered until it ends. A payroll system that tests eligibility on the full, un-prorated salary will include or exclude the wrong people in months with loss of pay.

Professional Tax (PT)

Professional Tax is levied by state governments, not the Centre, and not every state charges it. The constitution caps it at ₹2,500 per person per year. Slabs, registration rules, return frequency and any special month (some states adjust the February deduction) differ by state, so the employee’s work location, not the company’s head office, decides what is deducted.

TDS on salary (Section 392)

The employer estimates each employee’s annual taxable income, computes the tax for the regime the employee has chosen, and deducts it in monthly instalments. For tax years starting 1 April 2026 this falls under Section 392 of the Income-tax Act, 2025 (it was Section 192 of the 1961 Act). TDS is deposited by the 7th of the following month (30 April for March), reported in a quarterly return — Form 138 from 1 April 2026, which replaced Form 24Q — and summarised for each employee in an annual certificate, Form 130, which replaced Form 16. Returns and certificates for FY 2025-26 and earlier stay on the old forms.

Because the estimate changes during the year — a joiner, a bonus, a raise, a changed declaration — the monthly deduction should be recalculated as remaining tax divided by remaining months, after subtracting TDS already deducted. A flat “annual tax ÷ 12” over-taxes mid-year joiners and leaves year-end shortfalls.

Mistakes that cause penalties

Calculating PF, ESI and PT on full salary in a month where the employee has loss of pay.
Using the head-office state for Professional Tax instead of the employee’s work state.
Treating TDS as a flat monthly amount and never trueing it up.
Missing UAN, PAN or ESIC numbers on the employee record, which makes returns fail.
Still capping PF wages at ₹15,000 after 17 September 2026.
Paying statutory dues on time but filing the matching return late (or the reverse).

What to automate

Statutory deductions are rule-driven, so they are the first thing to take out of spreadsheets: prorate wages for days worked, compute each deduction on the right base, and keep the deposit and return calendar visible to whoever owns payroll.

Statutory rates, ceilings and due dates are revised by government notification. The figures here were accurate at the time of writing — confirm against the official source (EPFO, ESIC, your state labour department or the Income Tax Department) before relying on them for a filing.

Frequently asked questions

What is the PF wage ceiling?

From 17 September 2026 the EPFO statutory wage ceiling is ₹25,000 a month (it was ₹15,000). Contribution is mandatory for employees whose PF wages are within it, and contributions are capped at it unless an employee is already contributing on higher wages under existing arrangements.

Who is covered by ESI?

Employees whose monthly wages are up to ₹21,000 (₹25,000 for persons with disabilities) in establishments covered by the ESI Act. The employee pays 0.75% and the employer 3.25% of gross wages.

When are PF, ESI and TDS due?

PF and ESI are due by the 15th of the following month. TDS on salary is due by the 7th of the following month. The quarterly salary TDS return (Form 138 from 1 April 2026, earlier Form 24Q) is due by 31 July, 31 October, 31 January and 31 May.

Is Professional Tax the same in every state?

No. It is a state levy with state-specific slabs and rules, capped at ₹2,500 per person per year, and some states do not levy it at all.