Statutory Payroll Compliance (PF, ESI, PT, TDS on Salary)

No. Running payroll is computing gross-to-net salary and generating payslips. Statutory payroll compliance is the narrower but higher-stakes function of correctly deducting, depositing, and reporting the four mandatory withholdings that arise from that payroll run: Provident Fund (EPF), Employees' State Insurance (ESI), Professional Tax (PT), and Tax Deducted at Source on salary (TDS). PNPC offers both as an integrated service, but a business that already runs its own payroll computation can engage PNPC purely for the statutory compliance layer — the deposits, returns, registrations, and inspection responses across all four regimes.

EPF continues to be computed on basic salary plus Dearness Allowance, following the EPF Scheme's wage definition. ESI is computed on a broader wage base that includes HRA, special allowances, and overtime — now defined as 'wages' under the Code on Social Security 2020, which repealed and subsumed the ESI Act 1948 with effect from 21 November 2025 (subject to a savings clause preserving existing rates and mechanics), and which also introduces a rule capping excluded allowances at 50% of total remuneration. This is a genuine statutory distinction, not an inconsistency to be resolved. The single most common compliance error we see in new clients is a payroll team applying the EPF logic (basic+DA only) to ESI computation as well — which systematically understates ESI contributions, since HRA is typically 40–50% of basic salary in most Indian salary structures.

No. TDS on salary applies from the first employee whose income crosses the basic exemption threshold — effectively, almost every employer with any salaried staff. Professional Tax, where the state levies it, has no minimum employee threshold — it applies from the first employee above the state's nil-PT slab. ESI becomes mandatory at 10 employees in most states (20 in a few). EPF becomes mandatory at 20 employees. A small business with 5 employees in Bangalore is therefore likely subject to TDS and Karnataka PT immediately, but not yet to ESI or EPF.

The four regimes do not communicate with each other, and neither, typically, do four separate vendors. A payroll data error — an incorrect basic salary entered for one employee in one month — will produce four different downstream errors: wrong EPF contribution, wrong ESI contribution, wrong PT slab application, and a skewed TDS projection. If four different specialists each see only their slice of the data, none of them is positioned to notice that the same root error is repeating across all four filings. A single integrated function reconciles the same underlying payroll data against all four computations every month, which is the only reliable way to catch this class of error before an external authority does.

EPF: 15th of the following month (both employee and employer contribution, via ECR on the EPFO Unified Portal). ESI: 15th of the following month (employer 3.25% + employee 0.75%, via ESIC portal challan). Professional Tax: varies by state — Maharashtra by the last day of the month, Karnataka by the 20th, Telangana and Andhra Pradesh by the 10th, West Bengal by the 21st, and Tamil Nadu on a half-yearly cycle (30 September and 31 March). TDS on salary: 7th of the following month, with March deductions due by 30 April (not 7 April, a common error). None of these deadlines carry a grace period.

Both attract interest at 12% per annum from the due date, computed from the date the amount was due, with no grace period. Beyond interest, both regimes empower the authority to levy damages: EPF damages were simplified with effect from 15 June 2024 to a uniform rate of 1% per month of arrears (roughly 12% per annum), replacing the earlier sliding scale of up to 25% per annum; ESI damages continue to follow a sliding scale of up to 25% per annum based on the length of delay. Both the EPF Act 1952 and the ESI Act 1948 were repealed and subsumed into the Code on Social Security 2020 with effect from 21 November 2025, but a savings clause carries forward these interest and damages mechanics without a substantive change. For wilful or repeated default, wilful default under both EPF and ESI provisions remains a criminal offence, each carrying imprisonment up to three years for the primary offence, with personal liability extending to directors and officers responsible for the business at the time.

Professional Tax is entirely state legislation with no central coordination. Some states — Delhi, Uttar Pradesh, Rajasthan, Haryana, Punjab — do not levy it at all. Among states that do, slabs, return frequency, and due dates differ completely: Maharashtra and Karnataka file monthly, with different slab structures and different due dates (month-end vs the 20th); Tamil Nadu files half-yearly based on total salary earned in the six-month period, not a monthly amount; and every state's slab structure has to be actively checked against the constitutional ₹2,500/year cap under Article 276(2), since state slabs are periodically revised by amendment and a slab that was compliant in one year can require adjustment after a revision. An employer with offices in three PT-levying states runs three fully independent PT compliance tracks. PNPC operates from Chennai, Bangalore, and Hyderabad specifically to manage Tamil Nadu, Karnataka, and Telangana PT with CA teams physically present in each state, consolidated into a single quarterly report for the client.

Yes. Directors who receive a salary or remuneration as working or whole-time directors are treated as employees for Professional Tax purposes in every state that levies PT — their remuneration is included in the gross salary on which the PT slab is applied, in the same way as any other employee. Directors who receive only sitting fees (not a recurring salary) are generally not subject to employee-side PT deduction on those fees, though the company's own entity-level PTEC obligation (in Maharashtra and Karnataka) remains regardless of director compensation structure.

TDS on salary is fundamentally a tax-collection mechanism, not a social-welfare contribution — it is an advance collection of the employee's own income tax liability, administered by the Income Tax Department under the TDS provisions of the Income-tax Act (the Income-tax Act 1961 for periods up to 31 March 2026, and its successor, the Income-tax Act 2025, thereafter). PF, ESI, and PT are welfare or state-revenue contributions administered by labour or state tax authorities. TDS requires a TAN (not the EPFO or ESIC codes), is computed on projected annual taxable income under the employee's elected tax regime rather than a flat percentage of a wage base, is deposited monthly by the 7th (not the 15th), and reported via a quarterly salary-TDS return rather than a monthly ECR or challan-based return.

The employer deducts salary TDS based on whichever tax regime the employee elects — the old regime (with deductions such as 80C-type investments, HRA, and home loan interest) or the new, lower-slab-rate regime with fewer deductions, which has been the default since FY 2023-24 and continues as the default under the Income-tax Act 2025. The employee declares this election in the prescribed investment-declaration form and may switch once during the financial year. This choice has no bearing on EPF, ESI, or PT computation — those three regimes are unaffected by the employee's regime election — but it materially changes the monthly TDS amount and requires a mid-year recomputation for the remaining months if the employee switches.

Form 24Q was the quarterly TDS return specifically for salary payments under the Income-tax Act 1961, filed on TRACES for each of the four quarters (31 July, 31 October, 31 January, and 31 May for Q4). The Q4 filing included Annexure II — the consolidated, full-year tax computation for every employee — which was the source data from which Form 16 (the annual TDS certificate given to each employee) was generated. Form 16 had two parts: Part A, downloaded directly from TRACES after the Q4 return was accepted, and Part B, prepared by the employer with the detailed salary and deduction breakup. Both were issued to employees by 15 June. With the Income-tax Act 2025 in force from 1 April 2026, this quarterly return and annual certificate have been renumbered under a new form series with the same underlying function and the same 15 June annual issuance deadline; PNPC applies the correct form series for the relevant tax year and continues to use the widely-recognised 'Form 24Q' and 'Form 16' terminology where it aids client understanding.

Payroll software computes exactly what it is configured to compute — it does not independently verify that the EPF wage base is legally defensible under the Supreme Court's 'basic wages' precedent and the current wage definition under the Code on Social Security 2020, that the ESI ceiling transition for a mid-year increment is applied at the correct contribution-period boundary, that the Karnataka PT constitutional cap is being enforced across the year, or that an employee's TDS regime election has actually been reflected correctly for the balance of the year. It also does not respond to an EPFO, ESIC, state PT, or Income Tax notice, represent the employer at an inspection, or advise on director remuneration structuring. Software is the computation engine; a CA firm is the professional oversight, advisory, and representation layer on top of it — and that layer is where statutory liability is actually managed.

A single structured monthly data submission: attendance and leave-without-pay data, confirmed variable pay for the month (bonus, incentives, overtime), new joiner details with prior UAN/IP numbers if any, exit details with last working date and full-and-final components, and any mid-month salary revisions with effective dates. From this single submission, PNPC separately computes and files EPF, ESI, PT, and TDS. You do not need to prepare four different data sets for four different specialists.

PNPC can onboard at any point in the financial year. The onboarding process for a mid-year takeover includes a review of the prior period's EPF, ESI, PT, and TDS records to confirm consistency, identification of any gaps or errors in the preceding months (a common finding when a business is switching from in-house or a previous vendor), and a plan to regularise any identified gaps before the ongoing monthly cycle begins. Waiting for a new financial year is not necessary and, if compliance issues already exist, is not advisable — the exposure continues to accrue interest and damages while unaddressed.

The direct statutory cost compounds across regimes: 12% per annum interest plus damages of 1% per month of arrears on EPF; 12% per annum interest plus damages of up to 25% of arrears on a sliding scale on ESI; state-specific PT late fees (typically 1–2% per month) plus penalties; and for TDS, 1.5% per month interest plus a ₹200/day late-filing fee capped at the TDS amount plus a discretionary penalty of ₹10,000 to ₹1 lakh for prolonged default. Beyond the direct statutory cost, there is the professional cost of regularisation, management time diverted to inspections and notice responses, and — for EPF and ESI wilful defaults — the personal exposure of directors under the respective criminal provisions, now housed within the Code on Social Security 2020. In our experience, the cumulative cost of an unmanaged multi-year gap across two or more of these four regimes routinely exceeds several years of properly managed compliance fees.

The employer's EPF contribution up to 12% of basic+DA is not treated as a taxable perquisite in the employee's hands, though a combined ceiling of ₹7.5 lakh per year applies across employer contributions to EPF, NPS, and superannuation, beyond which the excess is taxable. The employee's own EPF and ESI contributions are deducted from gross pay before arriving at net taxable salary for TDS purposes — EPF (employee share) is separately eligible for deduction under the old tax regime's investment-deduction provisions (historically Section 80C), while ESI has no direct income-tax deduction for the employee. Professional Tax paid is a direct deduction (historically under Section 16(iii)) in computing salary income, but this deduction is available only under the old tax regime, not the new regime — the new regime instead offers a flat standard deduction in its place. These interactions mean the four regimes are not entirely independent for tax computation purposes, even though they are administered separately.

Yes, materially. EPF and ESI both include a genuine employer contribution — 12% of basic+DA (EPF) and 3.25% of gross wages (ESI) — paid by the company over and above the employee's net salary, a real cash cost to the business beyond what is deducted from the employee. Professional Tax is deducted from the employee's salary with no employer-side contribution (though the company itself may owe a separate entity-level PTEC in Maharashtra and Karnataka). TDS on salary is not a cost to the employer at all — it is withheld from the employee's own salary and remitted to the government on the employee's behalf; the employer bears no tax cost, only the compliance obligation to withhold and deposit correctly.

Yes. EPF and ESI both require the employer to mark the employee's exit on the respective portal with the correct date and reason, enabling the employee's withdrawal or transfer claims. Professional Tax is applied on the employee's actual gross salary for the exit month (and, for Tamil Nadu, computed on the actual salary earned within the half-year up to the exit date, not a full half-year figure). TDS must be computed on all taxable components of the settlement — balance salary, taxable leave encashment, notice pay, and any gratuity in excess of the applicable statutory exemption (₹20 lakh under the current gratuity exemption limit) — and reported correctly in the next quarterly salary TDS return. Each of these four steps depends on the same exit data (last working date, final salary, settlement components) being applied consistently across all four systems.

No single minimum applies across all four — each regime has its own threshold, and Professional Tax (where levied) has none at all. TDS on salary applies to essentially any employer paying salary above the basic exemption threshold, from the first employee. Professional Tax, in states that levy it, applies from the first employee earning above the state's nil-PT slab, with no minimum employee count. ESI becomes mandatory at 10 employees in most states. EPF becomes mandatory at 20 employees. A business with 3 employees in a PT-levying state is already subject to two of the four regimes (PT and TDS) despite having a headcount far below the EPF and ESI thresholds.

PNPC has operating offices in Chennai, Bangalore, Hyderabad, and Dubai. Indian statutory payroll — EPF, ESI, state Professional Tax, and Section 192 TDS — is managed from our India offices. UAE payroll — Wage Protection System (WPS) compliance, end-of-service gratuity computation under UAE Labour Law, and UAE Corporate Tax payroll reporting — is managed by our Dubai office. For businesses with entities or employees in both jurisdictions, PNPC coordinates both under a single engagement rather than requiring the client to brief two separate firms in two countries.

The onboarding process begins with a comprehensive review of the prior 12 months (or since the establishment's most recent registration, whichever is shorter) across all four regimes: EPFO ECR history reconciled against the passbook, ESIC contribution history reconciled against half-yearly returns, PT deduction registers reconciled against filed returns and Form 16 disclosures, and TRACES 26AS credits reconciled against filed 24Q returns. Any discrepancy identified is quantified and a regularisation plan is proposed before the ongoing monthly cycle begins. This upfront review is what allows PNPC to take over compliance with a known, documented starting position rather than an assumed clean slate.

Registration or verification of EPFO Establishment Code, ESIC Employer Code, state PTRC/PTEC, and TAN. Monthly EPF ECR preparation and deposit by the 15th. Monthly ESI contribution computation and deposit by the 15th. Professional Tax deduction and deposit per each applicable state's own schedule. Monthly Section 192 TDS computation (old vs new regime) and deposit by the 7th. Cross-regime reconciliation of the same underlying payroll data every month. Quarterly Form 24Q filing. ESI half-yearly Return of Contributions. Quarterly consolidated multi-state PT reporting. Year-end Form 16 issuance (Part A + Part B) by 15 June. Response to any EPFO, ESIC, state PT, or Income Tax notice, demand, or inspection across all four regimes. A single monthly data submission process for your team, replacing four separate vendor relationships.

PNPC charges a fixed monthly or annual retainer fee for the combined EPF, ESI, PT, and TDS compliance function, based primarily on headcount, the number of states in which you operate, and the complexity of your salary structures (multiple pay grades, expatriate employees, variable pay components). The exact fee is confirmed in writing before the engagement begins. We are not the cheapest option in the market — a payroll software subscription alone will always be less expensive on a pure cost basis. What the retainer buys is the professional review, cross-regime reconciliation, and representation that a software subscription does not provide, and that consistently costs less than the interest, damages, and regularisation expense of an unmanaged compliance gap.

None of the four apply until salary is actually paid to an employee — revenue or profitability of the business is irrelevant to the trigger. A pre-revenue startup that has hired its first paid employee already has a Section 192 TDS obligation (if the salary crosses the exemption threshold) and, if operating in a PT-levying state, a Professional Tax obligation from that first employee, regardless of the company's financial position. EPF and ESI remain dormant until the respective headcount thresholds are reached.

No, with narrow, specific exceptions defined by each statute. EPF allows a first-time member earning above ₹15,000/month basic+DA to opt out at the point of joining, but not thereafter, and not if they were ever previously an EPF member. ESI has no employee opt-out for anyone within the wage ceiling — coverage is compulsory. Professional Tax has specific, narrow state-defined exemptions (certain age thresholds, disability, or category-based exemptions in some states) but no general employee opt-out. TDS is not something an employee opts out of — the employer's obligation to deduct is independent of employee preference; an employee can only affect the amount deducted through their regime election and investment declarations, and, separately, through a lower-deduction or nil-deduction certificate obtained from their assessing officer.

Individual inspections — an EPFO enforcement visit, an ESIC Social Insurance Officer inspection, a state PT department review, or a TDS default assessment by the Income Tax Department — are each conducted independently by their respective authority and are not coordinated with each other. However, the underlying evidence each authority examines is the same payroll register, the same salary structure, and the same employee data. An inconsistency an ESIC inspector identifies in the wage base, for example, is often exactly the kind of issue that would also affect the EPF or PT computation if examined. PNPC's integrated record-keeping across all four regimes means that when one authority raises a question, we can immediately assess and address the parallel exposure under the other three — rather than discovering it only when that authority's own inspection eventually occurs.

A separate specialist for each regime is a defensible model in isolation, but it creates a structural blind spot: no single person or firm sees the complete monthly payroll data applied consistently across all four sets of rules. PNPC's model is to receive one monthly data submission and apply all four regimes' computations to it within a single reviewing team, so that a data error, a wage-base inconsistency, or a mid-year change is caught once, centrally, rather than potentially missed by three of four specialists who each only see their own slice. This is not a claim that individual specialists are less competent — it is a structural argument that integration catches a class of error that specialisation, by its nature, cannot.

Gratuity — historically under the Payment of Gratuity Act 1972, now carried forward within the Code on Social Security 2020 (with the qualifying service period for fixed-term contract employees reduced to one year under the new labour codes) — is a related but distinct obligation. It is not part of the monthly PF/ESI/PT/TDS cycle, since it typically crystallises only on an employee's separation after five years of service (or earlier on death, disability, or for eligible fixed-term contract employees), and requires separate actuarial provisioning in the company's accounts rather than a monthly deduction. PNPC advises on gratuity exemption computation (up to ₹20 lakh under the current statutory exemption limit) as part of full-and-final settlement TDS computation, and can advise separately on gratuity trust setup and actuarial valuation as part of a broader statutory and accounting engagement, though it sits outside the core four-regime monthly compliance cycle described here.

No. Once EPF coverage is triggered by crossing the 20-employee threshold — even on a single day — the establishment remains permanently covered, regardless of whether headcount later falls below 20. The same principle applies to ESI once the applicable threshold is crossed. There is no de-registration mechanism for a temporary or even sustained drop in headcount; the only way to end the obligation is a formal establishment closure with all dues settled and the appropriate closure intimation filed with each authority.

Yes. This is one of the more common engagements we take on. The process involves a structured review to quantify the exposure under each regime independently (since each has its own limitation periods, interest computation, and damages scale), preparation of the regularisation filings and arrear payments for each authority, and — where the facts support it — representation to negotiate the damages or penalty component within the statutory framework that most regimes provide for genuine, non-wilful defaults. Each of the four regimes is regularisable; the cost and process differ materially between them, and a multi-year, multi-regime gap requires a coordinated regularisation plan rather than four independent fixes running on uncoordinated timelines.