India Payroll Compliance Guide 2026
This guide covers the key payroll compliance requirements for Indian businesses. Always consult a qualified CA or HR compliance specialist for advice specific to your situation.
1. Provident Fund (PF)
Applicability
- •Mandatory for establishments with 20+ employees
- •Voluntary for smaller establishments
- •Applies to employees earning up to ₹15,000/month basic salary (mandatory enrollment)
- •Employees earning above ₹15,000 can opt in voluntarily
Contribution Rates
| Component | Employee | Employer |
|---|---|---|
| EPF (Employee [Provident Fund (EPFO)](https://www.epfindia.gov.in/)) | 12% of basic | 3.67% of basic |
| EPS (Employee Pension Scheme) | 0% | 8.33% of basic (max ₹1,250/month) |
| EDLI (Employee Deposit Linked Insurance) | 0% | 0.5% of basic (max ₹75/month) |
| EPF Admin Charges | 0% | 0.5% of basic (min ₹500/month) |
Total employer cost: ~13% of basic salary
Key Deadlines
| Activity | Deadline |
|---|---|
| Monthly ECR filing | 15th of following month |
| Monthly challan payment | 15th of following month |
| Annual PF return (Form 3A/6A) | 30 April |
UAN Management
- •Every employee must have a Universal Account Number (UAN)
- •UAN is generated by EPFO and linked to Aadhaar
- •Employer must activate UAN for new employees within 7 days of joining
- •UAN must be seeded with Aadhaar, PAN, and bank account
Common Compliance Mistakes
- •Not enrolling eligible employees
- •Calculating PF on gross salary instead of basic salary
- •Late ECR filing (penalty: ₹5/day per employee)
- •Not updating UAN when employee details change
2. Employee State Insurance (ESI)
Applicability
- •Mandatory for establishments with 10+ employees (in most states)
- •Applies to employees earning up to ₹21,000/month gross salary
- •Employees earning above ₹21,000 are exempt
Contribution Rates
| Component | Employee | Employer |
|---|---|---|
| ESI | 0.75% of gross | 3.25% of gross |
Total ESI cost: 4% of gross salary for eligible employees
Benefits Provided
ESI provides employees with:
- •Medical benefits (for employee and family)
- •Sickness benefit (70% of wages for up to 91 days)
- •Maternity benefit (100% of wages for 26 weeks)
- •Disablement benefit
- •Dependent benefit
Key Deadlines
| Activity | Deadline |
|---|---|
| Monthly contribution payment | 15th of following month |
| Half-yearly return | May 11 (Oct–Mar period) and Nov 11 (Apr–Sep period) |
Common Compliance Mistakes
- •Not enrolling employees who cross the ₹21,000 threshold mid-year (they remain enrolled for the rest of the contribution period)
- •Incorrect gross salary calculation (ESI is on gross, not basic)
- •Late payment (penalty: 12% per annum interest)
3. Tax Deducted at Source (TDS) on Salary
Applicability
- •Applies to all employees whose annual income exceeds the basic exemption limit
- •Employer is responsible for deducting and depositing TDS
Tax Slabs (FY 2025-26, New Regime - Default)
| Income Slab | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
*Note: Standard deduction of ₹75,000 available under new regime*
Old Regime (Optional)
Employees can opt for the old regime with deductions under 80C, 80D, HRA, etc. They must declare their choice at the beginning of the financial year.
TDS Process
- 1Employee submits Form 12BB (investment declaration) at start of year
- 2Employer calculates estimated annual tax liability
- 3Monthly TDS = Annual tax liability / 12
- 4Employer deposits TDS by 7th of following month (30th April for March)
- 5Employer files quarterly TDS return (Form 24Q)
- 6Employer issues Form 16 to employees by 15 June
Key Deadlines
| Activity | Deadline |
|---|---|
| Monthly TDS deposit | 7th of following month (30 April for March) |
| Q1 TDS return (Apr–Jun) | 31 July |
| Q2 TDS return (Jul–Sep) | 31 October |
| Q3 TDS return (Oct–Dec) | 31 January |
| Q4 TDS return (Jan–Mar) | 31 May |
| Form 16 issuance | 15 June |
4. Professional Tax
Applicability
- •State-specific tax levied on employment income
- •Not applicable in all states
- •States that levy professional tax: Maharashtra, Karnataka, West Bengal, Andhra Pradesh, Telangana, Tamil Nadu, Gujarat, and others
Maharashtra Professional Tax Slabs (2025-26)
| Monthly Salary | Monthly PT |
|---|---|
| Up to ₹7,500 | Nil |
| ₹7,501 – ₹10,000 | ₹175 |
| Above ₹10,000 | ₹200 (₹300 in February) |
*Note: PT slabs vary by state. Check your state's current slabs.*
Key Deadlines (Maharashtra)
| Activity | Deadline |
|---|---|
| Monthly PT payment | Last day of following month |
| Annual PT return | 31 March |
5. Gratuity
Applicability
- •Payable to employees who have completed 5+ years of continuous service
- •Applicable to establishments with 10+ employees
Calculation
Gratuity = (Last drawn basic salary × 15 × years of service) / 26
Example: Employee with 8 years of service, last basic salary ₹50,000/month
Gratuity = (50,000 × 15 × 8) / 26 = ₹2,30,769
Tax Treatment
- •Gratuity up to ₹20 lakhs is tax-exempt for government employees
- •For private sector: exempt up to ₹20 lakhs (as per current limits)
6. Compliance Calendar Summary
| Month | Key Activities |
|---|---|
| April | Q4 TDS return (by 31 May), PF/ESI for March (by 15 April) |
| May | Form 16 issuance (by 15 June), PF/ESI for April |
| June | Form 16 issued, PF/ESI for May |
| July | Q1 TDS return (by 31 July), PF/ESI for June |
| August | PF/ESI for July |
| September | PF/ESI for August |
| October | Q2 TDS return (by 31 October), PF/ESI for September |
| November | ESI half-yearly return (by 11 November), PF/ESI for October |
| December | PF/ESI for November |
| January | Q3 TDS return (by 31 January), PF/ESI for December |
| February | PF/ESI for January |
| March | Annual PT return, PF/ESI for February |
*This guide is for reference only. Tax laws change frequently. Always verify current rates and deadlines with a qualified professional.*
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Related Resources
- •HR Onboarding Checklist - Ensure every new hire is enrolled in PF, ESI, and other statutory schemes from day one.
- •Employee Onboarding Automation Template - Automate your onboarding workflow including statutory registrations.
- •HR Performance Review Template - Structured performance review template for Indian SMBs.
- •HR OKR & Performance Management Template - Align individual goals with business objectives.
- •Payroll Automation Guide - How to reduce payroll processing from 3 days to 2 hours.
- •Leave Management System India - Manage leave and attendance in compliance with Indian labour law.
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