Payroll: PF, ESI, PT & TDS

TL;DR

Payroll for an Indian company intersects four statutory obligations: PF (12% of basic, capped at ₹1,800 employee + ₹1,800 employer for basic ≤ ₹15,000), ESI (0.75% employee + 3.25% employer on gross for gross ≤ ₹21,000), PT (state-specific, typically ₹200/month for salary above the threshold), and TDS (Section 192, computed annually).

Payroll for an Indian company is one of the most-touched compliance areas — every month, the employer must compute and deposit PF, ESI, PT, and TDS. Errors are common; the consequences include interest, penalty, and in the worst case, prosecution. This post is the one-page operational guide.

The Four Obligations

Obligation	Law	Who	When	Penalty
PF (Provident Fund)	EPF Act, 1952	Employer + Employee	15th of following month	Damages + interest under Section 7A / 14B
ESI (Employee State Insurance)	ESI Act, 1948	Employer + Employee	15th of following month	Interest + damages
PT (Professional Tax)	State PT Act	Employee (employer deducts)	Monthly / annually (state-specific)	State-specific penalty
TDS on salary	Income-tax Act	Employer deducts from employee	Monthly deposit by 7th of following month	Interest + penalty under Section 201

For a company with employees across multiple states, the PT regime is the most complex (every state has its own slab and due date).

Provident Fund (PF) — EPF Act, 1952

Applicability

• Every establishment with 20 or more employees.
• Every employee with basic salary + DA ≤ ₹15,000 at the time of joining (the “PF wage” concept).
• Employees with basic > ₹15,000 can opt-in (voluntary PF).

The Rate

• Employee contribution: 12% of basic + DA (or PF wage, capped at ₹15,000).
• Employer contribution: 12% of basic + DA, broken into:
  • EPS (Employee Pension Scheme): 8.33% of basic + DA (capped at ₹15,000 basic). Maximum pensionable salary ₹15,000.
  • EPF (Provident Fund): 3.67% of basic + DA (no cap).

So for an employee with basic ₹12,000 (within the ₹15,000 cap):

• Employee: 12% × 12,000 = ₹1,440.
• Employer EPS: 8.33% × 12,000 = ₹1,000 (rounded to nearest rupee).
• Employer EPF: 3.67% × 12,000 = ₹440.
• Total employer: ₹1,440.

For an employee with basic ₹30,000 (above the cap, eligible for EPS under the relevant EPS rule — generally only employees enrolled in EPS before 1 September 2014 continue to contribute to EPS on the capped wage; employees who joined after that date and whose basic exceeds ₹15,000 do not contribute to EPS, and the full 12% employer share goes to EPF):

• Employee: 12% × 15,000 (capped) = ₹1,800.
• Employer EPS (if eligible): 8.33% × 15,000 (capped at ₹15,000) = ₹1,250.
• Employer EPF: 3.67% × 30,000 (no cap on employer EPF for above-cap employees) = ₹1,101.
• Total employer (with EPS): ₹2,351.
• For post-1-Sep-2014 employees above the cap, EPS does not apply and the employer EPF becomes 12% × 30,000 = ₹3,600.

The Deposit

The PF is deposited on the EPFO Member Portal at unifiedportal-emp.epfindia.gov.in by the 15th of the following month. The ECR (Electronic Challan cum Return) is uploaded. The deposit is made through net-banking or NEFT.

For April salary, the deposit is due by 15 May.

The Penalty

• Late deposit: Damages under Section 14B — 5% to 25% of the arrears, depending on the period of default.
• Non-deposit: Prosecution under Section 14 — up to 3 years imprisonment, or fine up to ₹10,000, or both.
• Non-enrolment: Damages under Section 7A — 5% to 25% of the dues.

ESI — ESI Act, 1948

Applicability

• Every establishment with 10 or more employees (in some states, the threshold is lower).
• Every employee with gross salary ≤ ₹21,000 per month.

The Rate

• Employee contribution: 0.75% of gross salary.
• Employer contribution: 3.25% of gross salary.

For an employee with gross salary ₹18,000 (within the ₹21,000 cap):

• Employee: 0.75% × 18,000 = ₹135.
• Employer: 3.25% × 18,000 = ₹585.
• Total: ₹720.

For an employee with gross salary ₹25,000 (above the cap), no ESI applies. The employee is exempt.

The Deposit

The ESI is deposited on the ESI Portal at esic.gov.in by the 15th of the following month. The contribution is uploaded as monthly return. The deposit is made through net-banking.

The Penalty

• Late deposit: Interest at the rate notified (currently 12% per annum) on the arrears.
• Non-deposit: Prosecution under Section 85 — up to 2 years imprisonment, or fine up to ₹5,000, or both.

Professional Tax (PT) — State PT Act

Applicability

Professional Tax is a state-level tax on employment. Each state has its own PT Act with its own slabs and exemptions. The applicability and rates vary widely.

The Common Slabs

State	Salary Threshold	PT Rate
Maharashtra	Gross > ₹10,000 (women: > ₹25,000)	₹200/month for salary > ₹10,000
Karnataka	Gross > ₹15,000	₹200/month
Tamil Nadu	Gross > ₹3,500	₹200/month for salary ₹3,500–₹5,000; higher slabs above
West Bengal	Gross > ₹10,000	₹200/month
Gujarat	Gross > ₹6,000	Nil (Gujarat does not levy PT)
Delhi	Gross > ₹1,500	Nil (Delhi does not levy PT)

For employees in multiple states, the PT is computed based on the state of employment at the time of the payroll.

The Deposit

The PT deposit is state-specific:

• Maharashtra, Karnataka, Tamil Nadu: Monthly deposit by the employer on the state PT portal.
• Other states: Monthly / quarterly / annual deposit.

The PT return is filed annually by the employer in most states.

The Penalty

State-specific. Typical penalty is 2x the PT amount for late deposit.

TDS on Salary — Income-tax Act

Applicability

Every employer who pays salary to an employee must deduct TDS under Section 192. The TDS is based on the employee’s estimated total income for the FY.

The Rate

The TDS is based on the taxable income of the employee, computed as:

• Gross salary (basic + DA + HRA + special allowance + perquisites).
• Less: Standard deduction (₹75,000 for new regime, ₹50,000 for old regime).
• Less: Exemptions (HRA, LTA, etc.).
• Less: Deductions under Chapter VI-A (80C, 80D, etc.).

The tax on the taxable income is computed using the slab rates of the chosen regime (old or new). The 4% Health and Education Cess is added.

The annual tax is divided by 12 (or the number of months of employment). The result is the monthly TDS.

The Deposit

The TDS is deposited using Challan 281 (TDS / TCS challan), with section code 192 for salary. The deposit is by the 7th of the following month for the regular months; for the last quarter (Q4 — January to March), the TDS deducted in March is due by 30 April (not 7 May). The TDS is paid through the income-tax e-filing portal (TIN NSDL / e-payment).

For April salary, the TDS is due by 7 May. For March salary, the TDS is due by 30 April.

The Penalty

• Late deposit: Interest under Section 201(1A) — 1% per month (or part thereof) on the TDS amount.
• Late filing of Form 24Q: ₹200 per day under Section 234E (capped at the TDS amount).
• Non-deduction: Disallowance of the expense under Section 40(a)(ia) + interest + penalty under Section 271C.

The Common Triggers for Non-Compliance

Trigger 1 — New employee joined mid-month

The new employee’s TDS for the joining month is pro-rated to the days of employment. The PF and ESI contributions start from Day 1 of employment. The PT starts from Day 1 (state-specific).

Trigger 2 — Employee’s salary crosses the PF wage cap

An employee promoted with a basic salary increase from ₹14,000 to ₹16,000 crosses the PF wage cap. The PF contribution changes — the employee continues on PF (voluntary), but the EPS portion stops. The employer must update the PF record on the EPFO portal.

Trigger 3 — Employee’s salary crosses the ESI wage cap

An employee promoted with a gross salary increase from ₹19,000 to ₹22,000 crosses the ESI wage cap. The ESI contribution stops. The employer must update the ESI record on the ESI portal.

Trigger 4 — Employee leaves mid-month

The full month’s PF, ESI, and PT are due (the contributions are monthly, not pro-rated for part-month). The TDS is pro-rated to the days of employment.

Trigger 5 — Employee has multiple employers

An employee who works for two employers in the same FY has two Form 16s. The employee files the ITR, declaring the consolidated salary. The employer deducts TDS based on the income from that employer alone (the employer has no visibility into the other employer’s salary).

The Single Most Important Advice

Use payroll software (Zoho Payroll, Keka, Razorpay Payroll, or Tally with payroll add-on). The software handles the PF, ESI, PT, and TDS computation, the deposit, the return filing, and the Form 16 generation. Manual payroll is error-prone — a single mistake in PF computation creates a year-long reconciliation nightmare.

When to Get Help

For a company with 50+ employees, the payroll function is typically managed by an in-house HR + finance team. For a smaller company, the function is outsourced to a payroll service provider or a CA firm.

We routinely handle payroll for clients. Our payroll and accounting service covers the monthly payroll, the PF / ESI / PT / TDS deposit, the quarterly return filing, and the annual Form 16. Share your headcount and your current payroll process on WhatsApp for a no-charge assessment.

For the related TDS on salary mechanism, see our TDS on salary guide. For the bookkeeping methodology, see our Bookkeeping basics guide.

Sources

• EPF Act, 1952 — Sections 6, 7A, 14, 14B
• ESI Act, 1948 — Sections 39, 44, 85
• State PT Acts — Maharashtra, Karnataka, Tamil Nadu, etc.
• Income-tax Act, 1961 — Sections 192, 201, 234E, 271C
• EPFO Member Portal
• ESI Portal

Related guides

• EPF & ESI Compliance Checker — compute employer + employee PF (12% capped at ₹1,800), ESI contribution (0.75% / 3.25%), and verify registration thresholds.
• Income Tax Notice Response: Section 143(1), 148 & 245 — when TDS defaults under Section 201 trigger a Section 143(1) demand on the employer’s PAN.
• GST Notice Triage — companion guide for GST-side defaults (Section 73 / 74) on payroll-output supplies.