Payroll Compliance in India: PF, ESI, PT and TDS Basics

Employees' Provident Fund (EPF)

EPF is a retirement savings scheme run by the Employees' Provident Fund Organisation (EPFO). It generally applies to establishments with 20 or more employees, and others can join voluntarily. Both employer and employee contribute a percentage of wages every month, and the employer deposits the total through the EPFO portal with an electronic return. Employees are identified by their Universal Account Number (UAN), so correct UAN and KYC details for every employee are essential.

Employees' State Insurance (ESI)

ESI provides medical care and cash benefits to employees and their families through the Employees' State Insurance Corporation (ESIC). It covers employees up to a notified wage ceiling in areas where the scheme is implemented, and both employer and employee contribute. Contributions are paid monthly through the ESIC portal. Check the current wage ceiling and contribution rates on the ESIC website, because these are revised from time to time.

Professional tax and labour welfare fund

Professional tax (PT) is a state levy, so whether it applies, and at what rate, depends on the state where the employee works. Some states also have a labour welfare fund with small periodic contributions. Businesses with staff in several states need to track each state's rules separately, which is one of the main reasons growing companies move to payroll software.

TDS on salaries

Employers must deduct income tax at source from salaries based on each employee's estimated annual income and chosen tax regime, deposit it with the government on time, file quarterly TDS returns and issue the annual certificate to employees. Collect employees' tax regime choice and investment declarations early in the financial year, and verify proofs before the final months to avoid large deductions at the end of the year. India's new income-tax law took effect from April 2026, so make sure your payroll process and forms follow the current provisions.

The Labour Codes and what they change

The central government brought the four Labour Codes — on wages, industrial relations, social security and occupational safety — into force on 21 November 2025, replacing many older labour laws. For payroll teams, one of the most discussed changes is the uniform definition of wages: if allowances excluded from wages exceed a set share of total pay, the excess is added back, which can change PF, gratuity and other calculations. Some details depend on rules notified by the centre and the states, so review salary structures with a qualified professional.

A simple monthly payroll checklist

• Lock attendance, leave and overtime data before processing.
• Update new joiners, exits, salary revisions and arrears.
• Run payroll and check totals against the previous month.
• Deposit PF, ESI, PT and TDS within their due dates.
• Share payslips and keep challans and returns on record.
• Settle dues of employees who left as per law and company policy.

Accurate attendance is the starting point of accurate payroll; see our guide to digital attendance and leave management.

How software helps

A good payroll module calculates statutory deductions automatically, keeps salary structures consistent, generates payslips and challan data, and keeps an audit trail. WorkforceOS combines attendance, leave and payroll in one system; see the features or read our HRMS buyer's checklist. For accounting and finance needs such as working capital, ATTPL Finance can help, for legal questions on employment contracts, see ATTPL Legal, and for registrations such as Shops and Establishments or GST when starting a business, ATTPL Consultancy can assist. To discuss your payroll set-up, contact us.

Frequently asked questions