Running payroll in India: PF, ESI, TDS and the dates that matter

Paying salaries is the easy part. What sits around it — provident fund, state insurance, tax deduction and professional tax — are four regimes with different registrations, thresholds, due dates and penalties.

Provident fund

Applies when you employ 20 or more people. Voluntary registration below that is possible and is sometimes required by clients or tenders.

Contribution: 12% of basic plus DA from the employee, matched by the employer. Of the employer's 12%, 8.33% goes to the pension scheme (EPS) on a wage capped at ₹15,000, and the remainder to EPF. Employees earning above ₹15,000 at joining who were never previously covered can be excluded, though most employers cover everyone for simplicity.

Due: 15th of the following month. Late payment attracts interest at 12% a year plus damages of up to 25%.

The EPS split is the part employees most often misunderstand — their passbook does not show the full employer contribution because a portion bought pension instead. Projecting the EPF balance makes the distinction visible.

Employees' State Insurance

Applies when you employ 10 or more people (20 in some states) and covers employees earning up to ₹21,000 a month.

Contribution: 0.75% from the employee, 3.25% from the employer, on gross wages.

Due: 15th of the following month.

Note the threshold is on gross wages, so an employee crossing ₹21,000 mid-year continues to be covered until the end of the contribution period. Dropping them immediately is a common error.

TDS on salary

Applies whenever an employee's estimated annual income exceeds the basic exemption.

The employer estimates the year's tax, divides by twelve and deducts monthly. In practice this means collecting a declaration of the chosen regime and intended deductions in April, then proof by January or February, and correcting the deduction for the remaining months.

Due: deposit by the 7th of the following month; quarterly return in Form 24Q; Form 16 to each employee by 15 June.

Late deposit costs 1.5% a month. Late filing of 24Q costs ₹200 a day until filed, capped at the TDS amount — and until it is filed, the deduction does not appear in the employee's Form 26AS, which generates its own set of complaints in July.

Where employees ask which regime to pick, the honest answer is to run both rather than apply a rule of thumb. The CTC breakdown is also worth sharing at offer stage — it prevents the conversation about why the first salary slip does not match the offer letter.

Professional tax

A state levy, so the rules differ entirely by state. Maharashtra, Karnataka, West Bengal, Tamil Nadu, Telangana, Gujarat and others levy it; Delhi, Haryana and Uttar Pradesh do not.

Typically ₹150 to ₹200 a month per employee, deducted and paid by the employer, with monthly or annual returns depending on the state and the size of the liability.

What you actually need in place

• A salary structure that is defensible — basic, HRA, allowances — and consistent across employees at the same level
• Registrations: PF, ESI, professional tax in each state where you have employees, and a TAN for TDS
• A declaration from each employee in April, and proof collected by January
• Payslips issued monthly, showing each deduction separately
• A calendar with the 7th, the 15th and the quarterly return dates on it

Where it goes wrong

Treating contractors as contractors when they are not. A person working fixed hours under your direction, with no other clients, is an employee whatever the agreement says. Reclassification brings PF, ESI and TDS arrears with interest.

Multi-state employees. Professional tax follows the state the employee works in, not where the company is registered. Remote hiring across states creates registrations most small employers do not realise they need.

Missing the 7th. TDS deposited late cannot be undone, and the interest is charged per month or part month — depositing on the 8th costs a full month's interest.

None of this is difficult once it is set up. It is simply unforgiving of being forgotten, which is why it belongs on a calendar rather than in someone's memory.