India Payroll Compliance: EPFO, ESIC, TDS, and Professional Tax Explained

The Employees' Provident Fund (EPF) is a mandatory retirement savings scheme. Contributions are calculated on 'basic wages' - typically defined as basic salary plus dearness allowance. For IT sector employees, dearness allowance is usually zero, so EPF is 12% of basic salary.

The employer's 12% contribution splits as follows: 8.33% to Employees' Pension Scheme (EPS) and 3.67% to EPF. For employees earning basic wages above INR 15,000/month, the EPS contribution is capped at INR 1,250/month (8.33% of INR 15,000 ceiling). However, the employer continues to contribute 3.67% of actual basic wages to EPF on the excess.

Additional employer contributions: Employees' Deposit Linked Insurance (EDLI) at 0.5% of basic wages (capped at INR 75/month per employee) and EPFO administrative charges at 0.5% of basic wages (minimum INR 75 per month per establishment). Total employer EPFO obligation: approximately 13% of basic wages in practical terms.

ESIC provides medical, sickness, maternity, and disability benefits to employees earning below INR 21,000 per month (INR 25,000 for persons with disability). Contribution rates: employee 0.75% of gross wages, employer 3.25% of gross wages. The gross wages definition for ESIC includes all regular monetary payments - basic, HRA, conveyance, and other regular allowances.

ESIC applies to establishments with 10 or more employees in most states. The ESIC registration number is obtained at incorporation through AGILE-PRO-S (embedded in SPICe+) or separately thereafter. Contributions are due by the 21st of the following month. The ESIC half-yearly return (Form 6) must be filed for each 6-month contribution period.

Employees earning above INR 21,000/month are exempt from ESIC. For a GCC where all employees are software engineers earning above INR 21,000/month from day one, ESIC effectively does not apply (the INR 21,000 threshold was last revised in 2017 and is below starting salaries in most IT roles). However, registration is still required, and if any employee's gross wages fall below the threshold, ESIC contributions apply.

Under Section 192 of the Income Tax Act 1961, the employer must deduct TDS on salary at the applicable income tax slab rate at the time of payment. The employer estimates the employee's annual tax liability at the start of the year, deducts 1/12th per month, and adjusts in later months if the employee's tax situation changes (e.g., investment declaration changes).

TDS must be remitted to the Income Tax Department by the 7th of the following month (30 April for March deductions). Quarterly TDS returns on Form 24Q are due by 15 July (Q1), 15 October (Q2), 15 January (Q3), and 15 May (Q4). Form 16 (the annual TDS certificate for employees) must be issued by 15 June of the following year.

Professional Tax (PT) is a state tax on employment income, levied by state governments under Article 276 of the Constitution of India. Not all states levy PT - Uttar Pradesh, Delhi, Rajasthan, and several others do not. The tax is deducted from the employee's salary and remitted to the state government.

Maharashtra PT: maximum INR 2,500 per year per employee. For employees earning INR 10,001-25,000 per month, PT is INR 175/month; for employees earning above INR 25,000 per month, PT is INR 200/month (except February when it is INR 300, to make the annual total INR 2,500). Karnataka PT: maximum INR 2,400 per year per employee, deducted at INR 200/month for employees earning above INR 15,000 per month.