India has no single "payroll tax" like the US. Instead an employer deducts and deposits a bundle: EPF (12% employee + 12% employer on Basic+DA), ESI (0.75% employee + 3.25% employer on gross, only when gross is Rs 21,000/month or less), TDS on salary under Section 192 at the employee's slab, and professional tax (state-levied, capped at Rs 2,500/year). PF and ESI must be deposited by the 15th of the following month.
When people search "payroll tax in India" they usually mean the total statutory cost of employing someone — EPF + ESI + TDS + professional tax + Labour Welfare Fund. Only TDS is an actual income tax; EPF/ESI are social-security contributions and professional tax and LWF are state levies.
Payroll Deductions Summary — Per Employee
Every statutory component an Indian employer must handle each month, with who pays and the wage base. See TDS on salary and professional tax for the detailed rules.
| Component | Employee | Employer | Wage base |
|---|---|---|---|
| EPF (Provident Fund) | 12% | 12% | Basic + DA (statutory ceiling Rs 15,000) |
| ESI | 0.75% | 3.25% | Gross — only if gross <= Rs 21,000/mo |
| TDS on salary (Sec 192) | At slab | Deducts & deposits | Estimated annual tax ÷ 12 |
| Professional tax | Up to Rs 200/mo | Deducts & pays | State slab — max Rs 2,500/yr |
| Labour Welfare Fund (LWF) | Rs 6–36 | Rs 12–72 | State-specific; half-yearly / yearly |
EPF wage ceiling Rs 15,000; ESI covers gross up to Rs 21,000 (Rs 25,000 for differently abled). PT and LWF vary by state.
EPF & ESI — How the Contributions Split
EPF is mandatory once an establishment has 20 or more employees. Both sides contribute 12% of Basic+DA, but the employer's 12% is split across three funds, plus small charges:
- 3.67% → EPF (provident fund account)
- 8.33% → EPS (pension) — capped on Rs 15,000 of basic
- 0.50% → EDLI (deposit-linked insurance)
- 0.50% → EPF administration charges (on top of the 12%)
ESI applies only where an employee's gross salary is Rs 21,000/month or less (Rs 25,000 for differently abled employees) and the unit is in an ESIC-notified area. Contribution periods run April–September and October–March; if the wage crosses the limit mid-period, coverage continues to the period end.
Employers often keep basic salary low (e.g. 40% of CTC) to reduce PF. But basic must be at least the applicable minimum wage, and EPFO can treat artificially split allowances as PF-eligible wages. Structure carefully — the Supreme Court and EPFO circulars have tightened what counts as "wages".
Setting up payroll or unsure of your PF/ESI liability?
Talk to a Payroll Expert →TDS on Salary & Form 24Q
Under Section 192 the employer estimates the employee's annual tax liability and deducts 1/12th each month. The new regime is the default; the employee must actively choose the old regime and declare deductions to change the TDS.
Employees compare regimes with our income-tax calculator and slab tables before submitting Form 12BB. Excess TDS is refunded when the employee files their income-tax return.
Gratuity — a provision, not a monthly deduction
- Provision at roughly 4.81% of basic per month
- Formula: (last basic × 15 × completed years) ÷ 26
- Payable after 5 years of continuous service
- Tax-exempt up to Rs 20 lakh for private employees
Late or non-deposit of EPF/ESI attracts interest, damages and possible prosecution under the EPF & MP Act, 1952 and the ESI Act, 1948. Configure payroll to deposit by the 15th of each month, and file Form 24Q on time to avoid the Rs 200/day late fee under Section 234E.
Key Payroll Compliance Due Dates
| Obligation | Due date | Form / mode |
|---|---|---|
| EPF monthly deposit & return | 15th of next month | ECR on EPFO portal |
| ESI monthly contribution | 15th of next month | ESIC challan |
| TDS on salary — Q1 (Apr–Jun) | 31 July | Form 24Q |
| TDS on salary — Q2 (Jul–Sep) | 31 October | Form 24Q |
| TDS on salary — Q3 (Oct–Dec) | 31 January | Form 24Q |
| TDS on salary — Q4 (Jan–Mar) | 31 May | Form 24Q |
| Form 16 to employees | 15 June | Annual TDS certificate |
TDS deposited monthly by the 7th of the following month (April dues by 30 April). Professional-tax return dates vary by state.
You must run payroll compliance if
- You have 20+ employees (EPF mandatory)
- Any employee earns gross <= Rs 21,000 (ESI)
- You pay salaries above the TDS threshold
- You operate in a state that levies professional tax
Common costly mistakes
- Depositing PF/ESI after the 15th
- Not filing Form 24Q — Rs 200/day 234E fee
- Wrong regime applied to salary TDS
- Ignoring professional tax / LWF registration
- EPFO establishment registration
- ESIC registration (if applicable)
- TAN for TDS deposit
- Professional-tax registration in each state
- Monthly ECR & ESI challan by 15th
- Monthly TDS deposit by 7th
- Quarterly Form 24Q filed
- Form 16 issued by 15 June
- Form 12BB collected from employees
- LWF paid per state schedule
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