PF, ESI, Professional Tax, and TDS: A Simple Guide to Payroll Compliance

**Introduction**

Every payslip in India carries a few deductions that employers are legally required to make: Provident Fund (PF), Employees' State Insurance (ESI), Professional Tax (PT) and Tax Deducted at Source (TDS). Each has its own rules, rates, thresholds, and deadlines, which is why they cause so much confusion.

This guide explains each one in plain language, so you know who it applies to, how much to deduct and when to pay.

**The four deductions at a glance**

**Provident Fund (PF)**

The Employees' Provident Fund is a retirement savings scheme managed by the Employees' Provident Fund Organisation (EPFO). Both employee and employer contribute every month.

**Who it applies to:** PF is mandatory for establishments with 20 or more employees. It's compulsory for employees whose PF wages (basic pay plus dearness allowance) are up to ₹15,000 a month. Employees earning more can be covered voluntarily and most employers cover them.

**How contributions are split.**

**Example.** For an employee with PF wages of ₹15,000, the employee contributes ₹1,800. The employer contributes ₹1,800 (₹1,250 to EPS and ₹550 to EPF), plus about ₹150 in EDLI and admin charges.

**Due date and filing:** Contributions are due by the 15th of the following month, paid through an Electronic Challan cum Return (ECR) on the EPFO portal. Each employee is linked by their Universal Account Number (UAN).

**Employees' State Insurance (ESI)**

ESI is a social security scheme run by the Employees' State Insurance Corporation (ESIC). It gives covered employees and their families medical care and cash benefits during sickness, maternity and disability.

**Who it applies to:** ESI applies to establishments with 10 or more employees in areas notified by ESIC. Employees with gross wages up to ₹21,000 a month (₹25,000 for persons with disabilities) are covered.

**Contribution rates.**

Employees earning an average of up to ₹176 a day are exempt from paying their share, but the employer still contributes.

**Example.** For an employee with gross wages of ₹20,000, the employee contributes ₹150 and the employer contributes ₹650.

**Contribution periods:** If an employee's wages rise above the limit during a contribution period (April to September, or October to March), ESI continues until that period ends.

**Due date:** Contributions are due by the 15th of the following month, paid on the ESIC portal.

**Professional Tax (PT)**

Professional tax is a tax on employment levied by state governments. Employers deduct it from salaries and pay it to the state.

**Who it applies to:** PT applies only in states that levy it such as Maharashtra, Karnataka, West Bengal, Tamil Nadu, Andhra Pradesh, Telangana, Gujarat and Madhya Pradesh. States like Delhi, Haryana, and Uttar Pradesh don't levy it.

**How much:** Each state sets its own salary slabs, but the Constitution caps professional tax at ₹2,500 per person per year. For example, in Maharashtra most salaried employees above the threshold pay ₹200 a month, with ₹300 in February, adding up to ₹2,500 a year.

**Employer obligations:** Employers usually need two registrations: one to deduct and pay PT on employees' salaries and one for the business's own professional tax.

**Due dates:** These vary by state and can be monthly, quarterly or annual. Where an employer has employees in several states, PT is deducted according to the rules of the state where each employee works.

Because slabs and deadlines are set by each state and are revised from time to time, always check the current rules for every state where you have staff.

**TDS on salary**

Employers must estimate each employee's annual taxable income, calculate the tax due and deduct it in equal monthly instalments from their salary.

**Choosing a tax regime:** The new tax regime is the default. Employees can choose the old regime if they want to claim deductions like HRA, Section 80C investments, and home loan interest. Ask every employee to declare their choice at the start of the year.

**New regime slabs (as they apply to salaried individuals):**

Salaried employees get a standard deduction of ₹75,000 under the new regime, and a rebate means no tax is payable on taxable income up to ₹12 lakh. In practice, most employees earning up to ₹12.75 lakh a year pay no income tax. Health and education cess of 4% applies on top of tax.

**How to calculate monthly TDS:**

1. Estimate the employee's gross salary for the year.

2. Subtract the standard deduction and any exemptions or deductions allowed under their regime.

3. Calculate tax on the taxable income, apply the rebate and add cess.

4. Divide the remaining tax by the months left in the year and adjust as salaries or declarations change.

**Due dates and filing:** TDS is deposited by the 7th of the following month (30 April for March). Employers file a quarterly TDS return and issue Form 16 to employees by 15 June.

**The new Income-tax Act:** From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act. Section numbers and some form names have changed, so update your templates and references. Slabs and limits can change in each Union Budget, so confirm the current figures before each financial year.

**Other statutory items to know**

PF, ESI, PT, and TDS are the big four, but a few other obligations often apply too.

* **Labour Welfare Fund (LWF):** A small contribution collected by some states, such as Maharashtra, Karnataka, Tamil Nadu and Gujarat, to fund welfare schemes for workers. Both employer and employee contribute, usually half-yearly or annually.

* **Gratuity:** A lump sum paid when an employee leaves after at least five years of continuous service (or one year for fixed-term employees under the Code on Social Security). It's calculated as 15 days' wages for every completed year of service, based on the last drawn wages. Many employers set aside 4.81% of basic pay each month to fund it.

* **Statutory bonus:** Employers with 20 or more employees must pay an annual bonus of 8.33% to 20% of wages to eligible employees earning up to ₹21,000 a month, subject to a wage ceiling for calculation.

* **Maternity benefit:** Eligible women employees are entitled to up to 26 weeks of paid maternity leave, which employers need to account for in payroll.

**Penalties for non-compliance**

Late or missed payments get expensive quickly.

Beyond the money, non-compliance can lead to notices, inspections and in serious cases prosecution. It also hurts employees who may lose benefits or face problems when filing their own tax returns.

**Monthly compliance checklist**

* Deposit TDS for the previous month by the 7th.

* Pay PF and file the ECR by the 15th.

* Pay ESI contributions by the 15th.

* Pay professional tax by the state's due date.

* Update records for new joiners (UAN, ESI number) and exits.

* Reconcile deductions on payslips with amounts deposited.

* Keep challans, returns, and payroll registers on file.

**How Mocha HRMS handles statutory compliance**

Mocha HRMS takes the guesswork out of statutory deductions, so every payslip is correct and every deadline is met.

* **Automatic PF and ESI calculations:** Contributions are calculated on the right wages, with wage ceilings and eligibility applied for each employee.

* **State-wise professional tax:** PT is deducted based on the state where each employee works.

* **TDS on salary:** Tax is calculated for each employee's chosen regime and declarations and spread across the remaining months.

* **Employee tax declarations:** Employees submit their regime choice and investment proofs through self-service.

* **Statutory reports:** Get the reports you need for PF, ESI, PT, and TDS filings.

* **Clear payslips:** Every deduction is shown separately, so employees understand their pay.

With Mocha HRMS, compliance is built into every payroll run.

**Conclusion**

PF, ESI, professional tax, and TDS each follow their own rules, but the pattern is the same: calculate correctly, deduct every month, deposit on time and file returns. With a clear calendar and the right payroll system, statutory compliance becomes routine.

Rates, limits, and deadlines are revised from time to time, so review them with your CA or payroll consultant at least once a year.

**Want compliance handled automatically?** Book a free demo of Mocha HRMS and see how it calculates every deduction for you.

**Frequently asked questions**

**Can an employee opt out of PF?** Employees whose PF wages exceed ₹15,000 when they first join, and who have never been PF members, can choose not to join. Employees earning up to ₹15,000 must be covered.

**Is PF calculated on basic pay or gross salary?** On PF wages, which are mainly basic pay plus dearness allowance. Under the labour codes, some allowances may also be counted if they exceed 50% of total pay.

**What happens to ESI when an employee's salary crosses ₹21,000?** Contributions continue until the end of the current contribution period, after which the employee is no longer covered.

**Is professional tax deductible from income tax?** Yes. Under the old tax regime, professional tax paid is deductible from salary income. It isn't deductible under the new regime.

**Who is responsible if TDS isn't deducted?** The employer. If TDS isn't deducted or deposited correctly, the employer is liable for the tax, interest and penalties.