Running payroll in India means more than paying salaries. Employers must deduct, contribute and deposit several statutory amounts on time, and file returns. Mistakes lead to penalties, interest and unhappy employees.
This article gives a plain-language overview. It is general information, not legal or tax advice. Rules, rates and thresholds change, and the new labour codes are being implemented, so always confirm current requirements with your CA or compliance adviser.
Provident Fund (PF)
The Employees' Provident Fund is a retirement savings scheme administered by the EPFO.
- It generally applies to establishments with 20 or more employees.
- The standard contribution is 12% of the employee's wages (basic plus dearness allowance) from the employee, and a matching employer contribution.
- Part of the employer contribution goes to the Employees' Pension Scheme, calculated on wages up to the statutory ceiling.
- Employers also pay administrative and EDLI (insurance) charges.
- Contributions are deposited monthly through the EPFO portal using the electronic challan-cum-return.
Under the new labour codes, the definition of wages is broader. If allowances form a large share of pay, part of them may count towards wages for contribution purposes. Review your salary structures with an adviser.
Employees' State Insurance (ESI)
ESI provides medical and cash benefits to employees.
- It applies to establishments with 10 or more employees in notified areas.
- It covers employees whose gross wages are within the prescribed ceiling.
- Both employee and employer contribute a percentage of gross wages, with the employer paying the larger share.
- Contributions are filed and paid monthly on the ESIC portal.
Professional Tax (PT)
Professional tax is levied by state governments, not the centre.
- Not every state levies it. Delhi, for example, does not.
- Rates and slabs differ from state to state, within a constitutional annual limit.
- The employer deducts it from salary and deposits it with the state, with returns as required by each state.
- Companies with employees in several states must follow each state's rules.
TDS on Salary
Employers must deduct income tax at source from salaries.
- TDS is based on the employee's estimated annual taxable income for the year.
- Employees choose between the new tax regime, which is the default, and the old regime with deductions and exemptions.
- Employees declare investments and proofs if they use the old regime.
- TDS is deposited monthly, quarterly returns are filed, and employees receive an annual TDS certificate.
The Income-tax Act, 2025 has replaced the earlier 1961 Act, so some section numbers and form references have changed. Check the current references with your adviser.
Other Obligations to Check
- Labour Welfare Fund in states that levy it.
- Gratuity for eligible employees.
- Statutory bonus where applicable.
- Minimum wages notified by your state.
- Registers and records required under labour laws.
"Compliance is not a once-a-year exercise. It is part of every payroll cycle."
How Payroll Software Helps
- Calculates PF, ESI, PT and TDS automatically from salary and attendance data.
- Applies state-wise professional tax rules.
- Generates payslips with all deductions clearly shown.
- Produces reports and files needed for deposits and returns.
- Lets employees declare their tax regime and investments.
- Keeps an audit trail of changes.
Software reduces calculation errors, but someone still needs to review payroll, deposit dues on time and stay informed about rule changes.
ITELLIC HRMS
ITELLIC's HRMS automates salary calculation from attendance and leave, with PF, ESI, PT and TDS, payslips, bank transfer files and compliance-ready reports. Book a free demo to see a sample payroll with your salary structure.
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