Payroll & Statutory Compliance

Payroll processing covers attendance and leave capture, computation of gross pay with allowances and reimbursements, calculation of statutory deductions for Provident Fund, ESI, Professional Tax and income tax at source, and arrival at net pay. It also includes preparing the bank disbursement file, generating payslips, depositing statutory dues, and filing the related returns. Each step carries its own deadline, so the work continues after salaries are credited.

Four deductions commonly apply. Provident Fund (EPF) and Employees' State Insurance (ESI) are social security contributions governed by their own Acts. Professional Tax (PT) is a state levy. Income tax is deducted at source on salary under Section 192 [ITA 2025: s. 392]; the applicable section depends on the relevant salary period and the repeal-and-savings rules. Whether each deduction applies depends on the number of employees, the wage level, and the state of employment. We assess applicability for your establishment before processing.

Provident Fund registration with the EPFO is mandatory once an establishment employs 20 or more persons. ESI registration with the ESIC generally applies at 10 or more employees, though the threshold is 20 in some states. Establishments below these limits can often register voluntarily. Once registered, the obligation continues even if the headcount later falls below the threshold. We assess your headcount and state to confirm which registrations apply.

Registration usually requires the entity's PAN, its certificate of incorporation or registration, proof of the business address, bank account details, and a list of employees with their PAN, Aadhaar and wage details. A digital signature of the authorised signatory is generally needed to complete the online filing. The exact set varies by entity type, so we confirm the checklist for a company, LLP, partnership or proprietorship before applying.

There is no government fee to register for Provident Fund or ESI. Both registrations are completed online through the EPFO and ESIC portals at no statutory cost. The cost an employer carries is the ongoing monthly contribution, the employer share of PF and ESI, rather than a registration charge. Any professional fee for handling the registration is separate from the government process.

The employee contributes 12% of basic wages plus dearness allowance, and the employer contributes a matching 12%. Part of the employer share (8.33%, subject to a wage ceiling of Rs 15,000) goes to the Employees' Pension Scheme, and the balance to the provident fund. Employees earning above the ceiling may still be covered depending on enrolment history. The split is reported each month through the Electronic Challan cum Return on the EPFO portal.

ESI generally covers employees earning gross wages up to Rs 21,000 per month, and up to Rs 25,000 for employees with disability. The employee contributes 0.75% of wages and the employer contributes 3.25%, a combined 4%. For example, an employee earning Rs 25,000 in gross wages falls outside ordinary ESI coverage, since that exceeds the Rs 21,000 limit. An employee who crosses the wage limit during a contribution period continues contributing until that period ends.

Provident Fund and ESI contributions are due by the 15th of the month following the month in which wages are paid. For PF, this involves generating the Electronic Challan cum Return (ECR) and paying the challan through the EPFO portal. For ESI, the challan is generated and paid through the ESIC portal. Late payment attracts interest and may attract damages.

Professional Tax is a tax on employment levied by individual state governments, not the central government. In states that levy it, deducting and depositing it is mandatory for the employer. Because each state sets its own slabs and rules, the monthly deduction and the filing frequency vary by location, and some states such as Delhi, Haryana and Uttar Pradesh do not levy it at all. Certain persons can be exempt under state rules, for example senior citizens in some states. The Constitution caps Professional Tax at Rs 2,500 per person per year.

In states that use this structure, such as Maharashtra and Gujarat, an employer deals with two Professional Tax certificates. The Professional Tax Enrolment Certificate (PTEC) covers the entity's own Professional Tax liability as a business. The Professional Tax Registration Certificate (PTRC) lets the employer deduct Professional Tax from employee salaries and deposit it with the state. An employer with salaried staff in these states typically needs both.

The employer estimates each employee's annual tax on salary, then deducts it in roughly equal monthly instalments across the year under Section 192(1) [ITA 2025: s. 392(1)]. The calculation considers declared investments and deductions available under the selected regime, including Section 80C [ITA 2025: s. 123; Sch. XV] where applicable. The standard deduction is Rs 75,000 under Section 16(ia) [ITA 2025: s. 19(1), Table: Sl. No. 2] only where the default/new regime applies; the amount and available deductions must be computed under the employee's applicable regime. Tax is deposited under Rule 30 [ITR 2026: r. 218] by the 7th of the following month, and tax deducted in March is deposited by 30 April.

The Income-tax Act 2025 applies from 1 April 2026. Under its repeal-and-savings rule, the Income-tax Act 1961 continues to govern proceedings for tax years beginning before that date, so payment date alone is not a complete transition test. Salary TDS is referenced as Section 192 [ITA 2025: s. 392], the quarterly salary statement as Form 24Q [ITR 2026: Form 138], and the annual salary certificate as Form 16 [ITR 2026: Form 130]. The applicable law and form should be selected by the relevant tax year and saved proceeding. The transition changes the section references, form numbers, reporting layout and Tax Year terminology. We update payroll configuration and employee declarations to the applicable references so filings clear the portal without validation errors.

The quarterly return reporting salary paid and tax deducted is Form 24Q [ITR 2026: Form 138] under Rule 31A [ITR 2026: r. 219]. Its due dates are 31 July for the April-to-June quarter, 31 October for July to September, 31 January for October to December, and 31 May for January to March. The applicable form follows the relevant reporting period and the repeal-and-savings rules. The fourth-quarter return carries the annual salary annexure used for the salary certificate.

The annual certificate of salary paid and tax deducted is Form 16 [ITR 2026: Form 130]. Under Rule 31 [ITR 2026: r. 215], the certificate is issued by 15 June of the financial year immediately following the tax year in which income was paid and tax deducted, after being generated and downloaded from the web portal specified by the Director General of Income-tax (Systems) or an authorised person. The form contains Parts A and B and Part C annexures; the statutory text does not name the portal as TRACES or state that generation occurs only after every Form 24Q [ITR 2026: Form 138] filing. For salary governed by the period up to 31 March 2026, the earlier Form 16 [ITR 2026: Form 130] remains applicable and is issued by 15 June 2026.

Delays carry financial consequences. Late PF payment attracts interest and may attract damages under the EPF Act, and late ESI payment attracts interest. For income tax deducted at source, Section 201(1A) [ITA 2025: s. 398(3)] applies interest at 1% for every month or part of a month where tax is deducted late and 1.5% for every month or part where it is deducted but deposited late. A late-filing fee of Rs 200 per day applies for delayed quarterly statements under Section 234E [ITA 2025: s. 427], capped at the tax deductible or collectible for that statement, and a separate penalty under Section 271H [ITA 2025: s. 461] can apply for failure to furnish the statement or for furnishing incorrect information. Late or incorrect filing can delay or prevent the employee's TDS credit from appearing in Form 26AS [ITR 2026: Form 168] until the deductor files or corrects the statement and the portal reflects it.

Authorities may inspect payroll records during PF, ESI, labour or income tax checks. Records worth retaining include attendance and leave registers, the salary register, PF and ESI challans and ECRs, Professional Tax challans, income tax challans and filed quarterly returns, issued salary certificates, and employee investment declarations with supporting proofs. Organised, retrievable records shorten inspections and support accurate filings.

The four Labour Codes, including the Code on Wages and the Code on Social Security, revise several definitions that affect payroll, most notably a wage definition that can raise the basic-wage portion and therefore PF and gratuity costs. Implementation has moved in stages and the applicable rules can change. We confirm the provisions in force for your state and establishment before applying them, rather than assuming a fixed position.