Employer Payroll Compliance in India: Complete Guide to TDS, EPF, and ESI
Emmanuel Amegah
April 22, 2026
India's payroll compliance framework spans three separate authorities: the Income Tax Department for TDS (Tax Deducted at Source on employment income), the Employees' Provident Fund Organisation (EPFO) for provident fund and pension contributions, and the Employees' State Insurance Corporation (ESIC) for health and disability insurance. Each has its own registration, rate structure, remittance channel, and filing deadline.
A fourth obligation, Professional Tax, operates at the state level and applies in roughly half of India's states. Its rates are modest but the fragmented state-by-state administration makes it disproportionately complex for employers with multi-state workforces.
India's financial year runs 1 April to 31 March. All thresholds and rates below apply to FY 2026-27 unless otherwise noted.
Indian Payroll Authorities at a Glance
| Authority | Obligation | Portal |
|---|---|---|
| Income Tax Department / CBDT | TDS on salaries (Section 192) | TRACES / Income Tax e-filing portal |
| EPFO | Provident Fund (EPF), Pension (EPS), EDLI insurance | EPFO Unified Portal |
| ESIC | Employee State Insurance | ESIC employer portal |
| State governments | Professional Tax | State-specific portals |
TDS on Salaries (Section 192)
How it works
Employers deduct TDS from each employee's salary every month and remit to the government by the 7th of the following month. Unlike most other TDS provisions, Section 192 has no fixed rate. The employer computes estimated annual tax liability and divides by the number of remaining months in the financial year. The calculation is updated when employee circumstances change.
Tax regime choice: old vs. new
Since FY 2023-24, employees choose between two regimes each year by informing their employer. From FY 2024-25, the new tax regime is the default. Employees who want the old regime must opt in explicitly.
New tax regime (default) — FY 2026-27
| Annual taxable income | Rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 to Rs 8,00,000 | 5% |
| Rs 8,00,001 to Rs 12,00,000 | 10% |
| Rs 12,00,001 to Rs 16,00,000 | 15% |
| Rs 16,00,001 to Rs 20,00,000 | 20% |
| Rs 20,00,001 to Rs 24,00,000 | 25% |
| Over Rs 24,00,000 | 30% |
The new regime was restructured in Union Budget 2025, with the nil slab raised to Rs 4 lakh and bands revised. Verify against the Finance Act 2025 and any Union Budget 2026 announcements before filing FY 2026-27.
A tax rebate under Section 87A means employees with net taxable income up to Rs 12,00,000 under the new regime pay zero tax. This effectively makes the new regime tax-free up to Rs 12 lakh for most salaried employees.
Old tax regime (opt-in)
| Annual taxable income | Rate |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Over Rs 10,00,000 | 30% |
The old regime retains deductions under Chapter VI-A, primarily Section 80C (up to Rs 1,50,000 for PF, ELSS, insurance, etc.), HRA exemption, LTA, and a standard deduction of Rs 75,000. High earners with large 80C investments and HRA claims may still benefit from the old regime.
Standard deduction
Both regimes allow a standard deduction of Rs 75,000 from gross salary before computing taxable income.
Surcharge and cess
On top of income tax, a 4% Health and Education Cess applies universally. A surcharge applies to income above Rs 50 lakh (10% to 37% depending on income level). Employers must compute and withhold surcharge and cess as part of the TDS calculation.
TDS remittance and filing
| Obligation | Deadline |
|---|---|
| Monthly TDS remittance | 7th of the following month (30 April for March) |
| Quarterly TDS return (Form 24Q) | 31 July, 31 October, 31 January, 31 May |
| Form 16 (TDS certificate to employees) | By 15 June after year-end |
Form 24Q is the quarterly TDS return filed on TRACES, consolidating all employee-level salary and deduction data. Form 16, the annual TDS certificate issued to each employee, is generated from TRACES and must be provided to employees by 15 June, enabling them to file their income tax returns.
EPF — Employees' Provident Fund
Applicability
EPF is mandatory for all establishments with 20 or more employees. Once an establishment is covered, EPF applies to all employees. Individual employees earning a basic salary above Rs 15,000/month can opt out of EPF if they were not members before joining, but this is uncommon in practice.
Three components under EPF
| Scheme | Employee contribution | Employer contribution | Base |
|---|---|---|---|
| EPF (Provident Fund) | 12% | 3.67% | Basic salary + DA |
| EPS (Employee Pension Scheme) | Nil | 8.33% | Capped at Rs 15,000/month |
| EDLI (Insurance) | Nil | 0.50% | Capped at Rs 15,000/month |
The employer's total contribution is 12% of basic salary plus DA, matching the employee's 12%. The employer's 12% is split: 8.33% goes to EPS (capped at Rs 1,250/month based on the Rs 15,000 ceiling) and 3.67% goes to EPF.
Employers also pay an administrative charge of 0.50% on total EPF wages. The EDLI administrative charge has been waived since 2020 — verify current status via EPFO circular.
The Rs 15,000/month ceiling for EPS means that for employees earning basic salary above Rs 15,000, the EPS contribution is fixed at Rs 1,250/month regardless of actual salary. The EPF portion absorbs the balance.
International workers and EPF
Foreign nationals working in India on International Worker (IW) status are covered under EPF without the Rs 15,000 ceiling. India has Social Security Agreements with several countries; employees from SSA countries may be exempt from EPF if they hold a Certificate of Coverage from their home country.
EPF remittance and filing
| Obligation | Deadline |
|---|---|
| Monthly EPF remittance | 15th of the following month |
| Monthly ECR (Electronic Challan cum Return) | 15th of the following month |
ECR is the monthly electronic return filed on the EPFO Unified Portal declaring contributions for each member. Payment and ECR submission share the same 15th-of-month deadline.
ESI — Employees' State Insurance
Applicability
ESI applies to establishments with 10 or more employees (20 in some states) in notified areas. It covers employees earning gross wages up to Rs 21,000/month (Rs 25,000/month for persons with disabilities). Employees above the threshold are exempt.
Rates
| Party | Rate | Base |
|---|---|---|
| Employer | 3.25% | Gross wages |
| Employee | 0.75% | Gross wages |
| Total | 4% |
ESI applies to total gross wages, unlike EPF which applies only to basic salary and DA. This broader base makes ESI calculations sensitive to allowance structure. Employees earning up to Rs 137/day are exempt from the employee contribution; the employer still contributes 3.25% for these employees.
ESI remittance and filing
| Obligation | Deadline |
|---|---|
| Monthly ESI contribution | 15th of the following month |
| Half-yearly return | Within 42 days of period end (11 November and 12 May) |
Professional Tax
Professional Tax (PT) is a state-level levy on employment income. It is employer-administered but the obligation, rates, and filing schedules vary by state.
States where PT applies include Andhra Pradesh, Karnataka, Kerala, Maharashtra, Tamil Nadu, Telangana, West Bengal, Gujarat, Madhya Pradesh, and others. Delhi, Rajasthan, Uttar Pradesh, and Haryana do not levy PT.
Sample rates (Maharashtra)
| Monthly salary | Monthly PT |
|---|---|
| Up to Rs 7,500 | Nil |
| Rs 7,501 to Rs 10,000 | Rs 175 |
| Over Rs 10,000 | Rs 200 (Rs 300 in February) |
The February anomaly in Maharashtra — Rs 300 instead of Rs 200 — ensures the annual total reaches Rs 2,500, the constitutional maximum. Payroll engines that apply a flat Rs 200 for all 12 months underpay by Rs 100 per employee in February.
Consolidated Compliance Calendar
| Deadline | Obligation |
|---|---|
| 7th of each month | TDS remittance |
| 15th of each month | EPF (ECR), ESI, and Professional Tax |
| 31 July | Q1 TDS return (Form 24Q) |
| 31 October | Q2 TDS return |
| 31 January | Q3 TDS return |
| 31 May | Q4 TDS return |
| 15 June | Form 16 issued to all employees |
| 11 November | ESI half-yearly return (April to September) |
| 12 May | ESI half-yearly return (October to March) |
Penalties
| Failure | Penalty |
|---|---|
| Late TDS remittance | 1.5% per month interest (Section 201) |
| Late TDS return (Form 24Q) | Rs 200/day up to tax amount (Section 234E) |
| Failure to deduct TDS | 100% of TDS amount as penalty plus interest |
| Failure to issue Form 16 | Rs 100/day (Section 272A) |
| Late EPF remittance | 12-18% p.a. interest plus damages up to 25% of arrears |
| Late ESI remittance | 12% p.a. interest; prosecution for persistent default |
Common Mistakes
For platforms and operators running Indian payroll for the first time, the complexity sits less in the rates and more in the structural details. Cadana's global payroll tax engine handles the calculations and multi-authority filing logic programmatically, but understanding where the failure points are is the starting point.
1. Not updating TDS for regime changes mid-year. Employees can submit a revised regime declaration once per year. If an employee switches regimes and the employer does not recompute the annualised TDS, the remaining months are withheld on incorrect assumptions, creating a mismatch at Form 16 time.
2. Calculating EPF on total CTC instead of basic salary plus DA. EPF applies to basic salary and dearness allowance only. Operators who accidentally apply EPF to total gross significantly over-contribute.
3. Missing the ESI wage ceiling. ESI stops applying when gross wages exceed Rs 21,000/month. Continuing to deduct and remit ESI above the threshold is a systematic overpayment. The ceiling is assessed per contribution period — a mid-period salary increase stops ESI from the following period.
4. Applying flat PT across all states. Multi-state employers who apply Maharashtra PT rates to employees in other states pay incorrect amounts in every state. Karnataka, Tamil Nadu, and West Bengal all have different slabs, ceilings, and filing schedules.
5. Late Form 16 issuance. The 15 June deadline for Form 16 is downstream from the 31 May Form 24Q deadline. Filing 24Q late automatically causes a missed Form 16 deadline, triggering Rs 100/day per employee penalties and leaving employees unable to file returns on time.
2027 Outlook
Union Budget 2026: The new regime slabs in effect for FY 2026-27 reflect Budget 2025 changes. Any further restructuring will be announced in February 2026 — verify before processing.
EPFO wage ceiling: The Rs 15,000/month EPS ceiling has been unchanged for over a decade. A revision would increase the employer EPS contribution for mid-salary employees. Monitor EPFO circulars for any update.
ESI expansion: ESIC has been progressively expanding geographical coverage to new districts. Employers with workers in newly notified areas become liable from the notification date.
How Cadana Handles Indian Payroll Compliance
Computing TDS under both regimes per employee declaration, splitting EPF contributions correctly between EPF and EPS, applying ESI only below the wage ceiling, handling Professional Tax across multiple states, and filing Form 24Q quarterly and Form 16 annually — Cadana handles the full Indian payroll compliance stack via its global payroll tax engine, so platforms and multinationals employing workers in India do not have to build or maintain the compliance logic themselves.
Book a demo at cadanapay.com/book-demo to see how Cadana's Indian compliance rails work in practice.
Sources and References
- Income Tax Act 1961 — Section 192 (TDS on salaries), Section 87A (rebate), Section 234E (late filing fees)
- CBDT — Form 24Q and Form 16 filing guide
- Employees' Provident Funds and Miscellaneous Provisions Act 1952
- EPFO — ECR filing and contribution schedule
- Employees' State Insurance Act 1948
- ESIC — Contribution rates and employer registration
- Union Budget 2025 — New tax regime slab revisions (Finance Act 2025)
- Professional Tax Acts — Maharashtra, Karnataka, Tamil Nadu (state-specific)
Rates current as of April 2026. New regime tax slabs are subject to annual Budget revision — verify Union Budget 2026 announcements before processing FY 2026-27 payroll.
Emmanuel Amegah