Code on Social Security, 2020: in force from 21 November 2025, it replaced the EPF Act, 1952 and the ESI Act, 1948; the EPF and ESI schemes continue under it. It brings a single definition of wages — where allowances excluded from wages exceed half of total pay, the excess is added back — and the EPF wage ceiling rose from ₹15,000 to ₹25,000 a month from 17 September 2026.
Payroll is really four compliance obligations running at once
PF, ESI, professional tax and TDS each have their own governing law, their own thresholds, and their own filing cycle — a single payroll run has to get all four right simultaneously, every month, for every employee. PF is calculated on basic wages plus dearness allowance, not gross salary, which is a common source of confusion. ESI applies only up to a wage ceiling, and an employee who crosses it mid-contribution-period continues to be covered until that period ends, rather than dropping out immediately. Professional tax is state-specific — the slabs of the state where each employee works apply, some states don't levy it at all, and rates are revised periodically by each state government, so a table set up once and never revisited can go stale.
What we need from you each month
- Attendance and leave records for the payroll period.
- Details of any new joiners or exits during the month, with their salary structure and statutory registration details (PF/ESI numbers, PAN).
- Any changes to salary structure, allowances, or deductions for existing employees.
- Investment declarations or Form 10-IEA (regime election) from employees, for accurate TDS computation.
- Details of any reimbursements, bonuses or one-time payments processed alongside regular salary.
The monthly payroll process, step by step
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Collecting inputs
Attendance, leave, new joiners, exits and any salary changes for the month are collected and confirmed before processing begins.
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Computing gross and net salary
Gross salary is computed for each employee, and statutory deductions — PF, ESI where applicable, professional tax, and TDS — are calculated against current rates and thresholds.
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Generating payslips
Payslips are generated showing each deduction separately, so employees can see exactly what's been taken out and why.
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Statutory deposit
PF, ESI, professional tax and TDS are deposited by their respective due dates, with challans retained for the compliance record.
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Return filing
PF and ESI returns are filed monthly; TDS is reported quarterly through Form 138 (Form 24Q for quarters up to March 2026), and professional tax returns follow the state's own filing cycle.
Due dates and penalties
| Item | Due date |
|---|---|
| PF deposit and return | 15th of the following month |
| ESI deposit and return | 15th of the following month |
| TDS deposit | 7th of the following month (30 April for March) |
| TDS return (Form 138, earlier 24Q) | Quarterly — 31 July, 31 October, 31 January, 31 May |
| Default | Consequence |
|---|---|
| Late deposit of PF | Interest at 12% per annum, plus damages ranging from 5% to 25% depending on the length of delay |
| Late deposit of ESI or TDS | Interest, and in the case of TDS, potential penalty under Section 271C for non-deduction |
| Incorrect PF basic-wage structuring | An EPFO audit can reassess and demand arrears, interest and damages retroactively across multiple years |
Practical notes from our engagements
- Basic salary kept artificially low to reduce PF liability. This is legally permissible only if the basic genuinely reflects a real component of the salary structure — EPFO audits specifically scrutinise the ratio of basic to gross, and a basic well below a reasonable proportion on a professional-level salary tends to draw attention.
- ESI coverage dropped the moment an employee crosses the wage ceiling. Coverage continues until the end of the current contribution period once an employee is covered, even if their wages increase mid-period — stopping deductions immediately on crossing the threshold is a common error.
- Professional tax slabs not updated after a state revision. Since these are set and revised by each state government periodically, a rate table set up once at onboarding and never revisited can quietly go out of date.
- Regime election (Form 10-IEA) not collected before the first payroll run of the year. Without it, TDS is computed on the default new regime, which may not match what the employee ultimately intends — collecting this early avoids a large correction later in the year.
How we handle payroll
We verify current PF, ESI, professional tax and TDS rates against the applicable notifications before setting up a client's payroll, rather than assuming a rate table stays valid indefinitely. Statutory deposits and returns are tracked against their own due dates each month, and we flag promptly wherever a rate or threshold change might affect an existing payroll setup.
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Frequently asked questions
Is PF mandatory for every business?
It becomes mandatory once an establishment has 20 or more employees. Businesses below that can register voluntarily, but it isn't compulsory until the threshold is crossed.
Is PF calculated on gross salary or basic salary?
Basic salary plus dearness allowance, not gross salary — this is one of the most common points of confusion in payroll calculations.
What happens if an employee's salary crosses the ESI wage ceiling during the year?
Coverage continues until the end of the current ESI contribution period, even though their wages have crossed the threshold — deductions don't stop immediately.
Do professional tax rates differ across states?
Yes — professional tax is levied and set by individual state governments, so slabs and due dates differ from one state to another, some states don't levy it at all, and each state revises its own rates. For staff in several states, each state's rules apply to the employees working there.
What's the deadline for depositing PF and ESI each month?
The 15th of the following month for both, with the corresponding return filed alongside the deposit.
Can a business deliberately keep basic salary low to reduce its PF contribution?
This is permissible only where the basic genuinely reflects a real salary component — EPFO audits specifically look at the ratio of basic to gross, and an artificially low basic on a professional-level salary is a common audit finding.
Does every employee need to submit a regime declaration for TDS purposes?
Employees who want to opt for the old tax regime need to inform their employer, typically through Form 10-IEA, at the start of the financial year — otherwise TDS is computed under the default new regime.