Payroll compliance in India. All of it.

1. Employees’ Provident Fund (EPF)

The EPF Act 1952 mandates a retirement-savings contribution from every “establishment” employing 20 or more persons (10 or more for some notified industries). Contributions are split between employer and employee, calculated on basic salary + dearness allowance.

• Employer share: 12% of (basic + DA), of which 8.33% goes to Employees’ Pension Scheme (EPS) and 3.67% to EPF, plus 0.5% EDLI and 0.5% admin.
• Employee share: 12% of (basic + DA).
• Statutory ceiling: ₹15,000/month of basic+DA for the employer’s EPS portion (the employee can voluntarily contribute on actual basic above this).
• Universal Account Number (UAN): permanent, portable across employers.
• Deposit deadline: 15th of the following month, via the EPFO Unified portal.
• Late-payment consequences: 12% p.a. interest under §7Q + damages up to 25% of arrears under §14B (graded by delay length).

2. Employee State Insurance (ESI)

The ESI Act 1948 provides medical and cash benefits to employees and their dependents. Applies to establishments employing 10 or more (20 or more in some states), for employees earning gross ≤ ₹21,000/month (₹25,000 for persons with disability).

• Employer share: 3.25% of gross wages.
• Employee share: 0.75% of gross wages.
• Deposit deadline: 15th of the following month via the ESIC portal.
• Coverage scope: medical care, sickness benefit, maternity benefit, disablement, dependant’s benefit, funeral expenses.
• Late-payment interest: 12% p.a. plus damages up to 100% of contribution depending on delay.

3. Professional Tax (state-wise)

PT is a state-levied tax under Article 276 of the Constitution. The Centre caps it at ₹2,500 per person per year, but individual states set slabs and frequencies (monthly, half-yearly, annual).

Twenty-eight states levy PT. A few that don’t: Delhi, Haryana, Uttar Pradesh, Uttarakhand, Punjab, Rajasthan, Himachal Pradesh, Arunachal Pradesh, J&K, Andaman & Nicobar.

Representative slabs (top brackets, salary thresholds vary by state):

• Karnataka: ₹200/month for salaries > ₹15,000.
• Maharashtra: ₹200/month for salaries > ₹10,000 (₹300 in February).
• Tamil Nadu: half-yearly slabs; top ₹1,250/half-year.
• West Bengal: ₹200/month at top slab.
• Kerala: half-yearly slabs; top ₹1,250/half-year.
• Telangana & Andhra Pradesh: ₹200/month at top slab.

EmployeeSight auto-applies the correct slab based on the employee’s work-location state — no manual lookup required at payroll close.

4. TDS on salary (IT Act §192)

Every employer must deduct income tax at source from monthly salary based on each employee’s expected annual tax liability, computed under the new or old regime as the employee elects.

• Computation: annual projected gross − exemptions − Chapter VI-A deductions → tax on that → divide by 12 (or remaining months) for monthly TDS.
• Quarterly returns: Form 24Q, deadlines 31 July / 31 Oct / 31 Jan / 31 May.
• Penalties: 1% per month interest for late deduction; 1.5% per month for late deposit; disallowance of 30% of expenditure under §40(a)(ia) if TDS not deposited by ITR filing date.

5. Form 16 issuance

Form 16 is the annual TDS certificate issued to each employee. Two parts:

• Part A: generated from the TRACES portal; quarter-wise TDS deposits with challan and BIN numbers.
• Part B: prepared by the employer; salary structure, exemptions (HRA, LTA), Chapter VI-A deductions, tax computation.

Deadline: 15 June following the financial year. For FY 2025-26, Form 16 must be issued by 15 June 2026.

6. Gratuity (Payment of Gratuity Act 1972)

Formula: (Last drawn basic + DA) × 15 ÷ 26 × completed years of service.

Eligibility: 5 continuous years of service (4 years and 240 days qualifies). Death or permanent disablement waives the 5-year minimum. Tax-free up to ₹20 lakh; amounts above are taxable.

Calculate it instantly with our free Gratuity Calculator.

7. Bonus Act 1965

Applicable to establishments with 20+ employees; bonus payable to employees earning ≤ ₹21,000/month basic+DA.

Minimum: 8.33% of salary or ₹100 (whichever higher). Maximum: 20%. Calculation ceiling: ₹7,000/month or minimum wage of the state (whichever higher).

Deadline: within 8 months of the close of the accounting year.

8. Factories-Act overtime

Factories Act 1948 (and most state Shops & Establishments Acts): work beyond 9 hours/day or 48 hours/week attracts 2x ordinary wages. Weekly off must be at least 24 hours.

Limits: maximum 60 hours/week including overtime; maximum 50 hours of overtime per quarter under Factories Act.

9. Labour Welfare Fund

State-levied; small flat contribution. Examples: Karnataka ₹20 + ₹40 employer; Maharashtra ₹6 + ₹18 (semi-annual); Kerala ₹20 + ₹20 (monthly). Approximately 16 states + UTs levy LWF.

10. Record retention

Retain payroll records for the longest applicable period:

• 8 years from relevant assessment year (Income Tax Act).
• 7 years from period of contribution (EPF Act).
• 5 years from contribution period (ESI Act).
• 3 years from period of payment (Bonus Act).

Practical default: 8 years for everything. EmployeeSight retains payroll cycle data + bank-payout files + Form 16 PDFs for this minimum, accessible via the in-product archive.

FAQ

What are the statutory deductions I must make from Indian payroll?

The core statutory deductions are Provident Fund (12% employer + 12% employee on basic + DA, capped at ₹15,000), Employee State Insurance (3.25% employer + 0.75% employee for salaries ≤ ₹21,000/mo), Professional Tax (state-specific slabs, typically ₹150–₹200/mo), TDS on salary per IT Act §192, and Labour Welfare Fund (state-specific, typically ₹5–₹30/mo). Gratuity (4.81% notionally) and bonus (8.33%–20% of salary subject to caps) are statutory entitlements but not monthly deductions.

What is the deadline for depositing PF and ESI?

PF must be deposited by the 15th of the following month via the EPFO Unified portal. ESI must be deposited by the 15th of the following month via the ESIC portal. Late deposit attracts interest (12% p.a. for PF, 12% p.a. for ESI) plus damages (up to 25% of arrears for PF under EPF Act §14B).

When does Form 16 need to be issued to employees?

Form 16 must be issued by 15 June following the relevant financial year (so for FY 2025-26, the deadline is 15 June 2026). It must cover the full year's salary, all deductions including Section 80C/80D/HRA, and the total TDS deposited.

What is the difference between Form 16 Part A and Part B?

Part A is the TDS certificate generated from the TRACES portal — it captures quarter-wise TDS deposits with challan and BIN numbers. Part B is the salary breakup statement prepared by the employer — it captures salary structure, exemptions claimed (HRA, LTA, etc.), and Chapter VI-A deductions. Both parts together constitute the complete Form 16.

How is gratuity calculated in India?

Under the Payment of Gratuity Act 1972 §4, gratuity = (Last drawn basic + DA) × 15 ÷ 26 × completed years of service. Eligibility requires 5 continuous years of service (4 years 240 days qualifies). Statutory cap is ₹20 lakh tax-free; amounts above are taxable. Death/disablement waives the 5-year minimum.

What Professional Tax slabs apply to my state?

Twenty-eight Indian states levy PT, each with its own slab structure. Karnataka: ₹200/mo above ₹15,000. Maharashtra: ₹200/mo above ₹10,000 (₹300 in Feb). Tamil Nadu: slab-based, max ₹1,250/half-year. West Bengal: max ₹200/mo. Kerala: half-yearly assessment up to ₹1,250. Andhra Pradesh & Telangana follow similar structures. Delhi, Haryana, UP, Uttarakhand, and a few others do not levy PT.

What is the penalty for late TDS deposit?

Interest under IT Act §201(1A): 1% per month for late deduction, 1.5% per month for late deposit (from date of deduction). Plus disallowance of 30% of the related expenditure under §40(a)(ia) if TDS is not deposited by the income-tax return filing date.

Do I need to maintain payroll records under Indian law?

Yes. Income Tax Act and Income-tax Rules require salary records to be retained for 8 years from the relevant assessment year. EPF Act requires PF records for 7 years. ESI Act requires records for 5 years. Practical posture: retain everything for the longest applicable period (8 years).