Payroll Compliance in India: PF, ESI, TDS, PT and LWF Explained for 2026
Payroll compliance in India means every salary run does four things correctly: it computes wages on the right legal base, deducts and pays PF, ESI, TDS, professional tax and welfare fund contributions on time, files the returns that go with them, and keeps records for inspection.
Three rule changes in the last year make 2026 different from earlier years: the Labour Codes' wage definition, the Income-tax Act 2025 with renumbered TDS forms, and the EPF wage ceiling raised to ₹25,000 from 17 September 2026. If your payroll software or last year's checklist predates these, check it now.
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PF / ESI Due
15th of every month
EPF Wage Ceiling
₹25,000 (from 17 Sep 2026)
Handled By
CA and Legal Team
Key Takeaways
The September 2026 PF return (ECR) and ESI contribution are due on 15 October 2026. The PF return needs a split-month calculation this time.
The EPF wage ceiling moved from ₹15,000 to ₹25,000 on 17 September 2026, the first change since 2014. The ESI ceiling stays at ₹21,000.
Salary TDS now falls under Section 392 of the Income-tax Act, 2025, with Form 138 as the quarterly return and Form 130 as the annual certificate.
Under the Labour Codes, allowances beyond 50% of total remuneration are added back to wages, which raises the PF and gratuity base.
Professional tax and labour welfare fund rules differ by state, so a central checklist is not enough.
What Changed in 2026
Three changes hit payroll directly:
| Change | Effective | What It Does to Payroll |
| Four Labour Codes in force | 21 November 2025 | A uniform "wages" definition; excluded allowances above 50% of remuneration are added back to wages |
| Income-tax Act 2025 | 1 April 2026 | Salary TDS moves from Section 192 to Section 392; Form 24Q becomes Form 138; Form 16 becomes Form 130 |
| EPF wage ceiling raised | 17 September 2026 | Mandatory PF, pension, and EDLI coverage and contribution base rise from ₹15,000 to ₹25,000 |
TDS due dates did not change in substance, and ESI rates did not change. The disruption sits in the base on which you calculate and in the form numbers you file under.
Monthly Payroll Compliance Calendar
Recurring dates for a standard payroll:
| Due | Task | Authority |
| 7th | Deposit TDS deducted in the previous month | Income Tax Department |
| 15th | Deposit PF and file the ECR | EPFO |
| 15th | Deposit ESI contributions | ESIC |
| State-specific | Professional tax payment and return | State authority |
| State-specific | Labour welfare fund, usually half-yearly or yearly | State authority |
| Quarterly: 31 July, 31 October, 31 January, 31 May | TDS return on Form 138 | Income Tax Department |
| 15 June, yearly | Salary TDS certificate to employees (Form 130) | Employer |
This month: September's PF contribution and ESI are due on 15 October. The Q2 TDS return for July to September is due on 31 October, and October's TDS deposit is due on 7 November.
The Payroll Run, Step by Step
Eight steps every month:
1
Fix the Wage Base
Split total remuneration into components. Under the Labour Codes, if excluded allowances exceed 50% of total remuneration, the excess counts as wages.
2
Check Coverage
Test every employee against the PF ceiling (₹25,000 now) and the ESI ceiling (₹21,000).
3
Compute Statutory Deductions
PF, ESI, professional tax, and labour welfare fund where it applies.
4
Compute TDS
On projected annual income, using the employee's declared tax regime.
5
Pay Salary and Issue Payslips
Under the Code on Wages, monthly-paid employees are to be paid by the seventh of the following month.
6
Remit on Time
TDS by the 7th, and PF and ESI by the 15th.
7
File the Returns
The ECR, ESI returns, state returns, and the quarterly TDS return.
8
Reconcile and Retain
Keep challans, registers, and returns for inspection.
Example (50% rule): On ₹60,000 monthly remuneration with ₹24,000 as basic and DA, allowances of ₹36,000 exceed the 50% line by ₹6,000. That ₹6,000 is added back, so wages come to ₹30,000, not ₹24,000.
PF: Ceiling, Rates, and a Worked Case
Employee and employer each contribute 12% of PF wages. The employer's 12% splits into 8.33% for the pension scheme and 3.67% for the provident fund. EDLI and administrative charges are 0.5% each, paid by the employer.
The ceiling change means more people are now covered and more contributions run on the higher base. The Ministry's notification, S.O. 5109(E) of 17 September 2026, raised the ceiling for the EPF, pension, and insurance schemes. EPFO's guidance says September 2026 goes into one ECR, with 1 to 16 September computed on ₹15,000 and 17 to 30 September on ₹25,000.
Worked Case: Wages of ₹30,000 After 17 September
The contribution base caps at ₹25,000:
| Head | Amount |
| Employee EPF, 12% | ₹3,000 |
| Employer EPS, 8.33% | ₹2,082.50 |
| Employer EPF, 3.67% | ₹917.50 |
| EDLI, 0.5% | ₹125 |
| Administrative charges, 0.5% | ₹125 |
Identify three groups before the next run:
New joiners with wages up to ₹25,000
Employees who were outside the scheme at ₹15,001 to ₹25,000
Existing members whose contribution was pegged at the old ceiling
Registration and filing sit on the EPFO portal. Our PF Registration and Filing support covers setup.
ESI: Who Is Covered and What You Pay
ESI applies to employees whose wages are up to ₹21,000 a month. The employer pays 3.25% of wages and the employee 0.75%, due by the 15th of the following month. On wages of ₹20,000, the employee pays ₹150 and the employer ₹650.
The ESI ceiling was not raised with the EPF ceiling, so an employee earning ₹23,000 can be inside PF and outside ESI at once.
Registration and returns run through the ESIC portal, and our ESI Registration service handles it.
TDS on Salary: Calculation and Returns
For FY 2026-27, an employer deducts tax under Section 392 after estimating each employee's annual taxable salary. The new regime is the default, with a ₹75,000 standard deduction. Employees now declare their choice of regime and other details to the employer on Form 122, in place of the old Form 12BB declaration.
| Income Slab | Tax Rate |
|---|
| Up to ₹4 lakh | Nil |
| ₹4 – 8 lakh | 5% |
| ₹8 – 12 lakh | 10% |
| ₹12 – 16 lakh | 15% |
| ₹16 – 20 lakh | 20% |
| ₹20 – 24 lakh | 25% |
| Above ₹24 lakh | 30% |
Worked case: An employee earns ₹18 lakh a year with no other deductions. Taxable income after the standard deduction is ₹17.25 lakh. Tax is ₹20,000 on the second slab, ₹40,000 on the third, ₹60,000 on the fourth, and ₹25,000 on the ₹1.25 lakh in the 20% slab, which makes ₹1,45,000. Add 4% cess of ₹5,800 for ₹1,50,800 a year, or about ₹12,567 a month in TDS.
Compliance Steps
Deposit each month's TDS by the 7th of the next month
File the quarterly return on Form 138. A 2026-27 quarter filed on the old Form 24Q will not go through
Issue Form 130 to each employee by 15 June
Use the new section references in challans and in payroll software
Check dates and forms on the Income Tax Department site. Our TDS Return Filing service covers the quarterly cycle.
Professional Tax and Labour Welfare Fund
These two are state subjects. Professional tax is levied by states under a cap of ₹2,500 per employee per year, and the slabs, due dates, and registration rules differ from state to state. Some states have no professional tax at all. Labour welfare fund contributions are also state-specific, with different rates, contributors, and frequencies, commonly half-yearly or yearly.
If you have employees in more than one state, you need one calendar per state. Do not copy a Maharashtra schedule onto a Karnataka payroll.
Other Employer Obligations Under Labour Laws
Payslips and records
Issue wage slips and maintain wage registers, attendance, and employment records.
Minimum wages
Pay at least the minimum wage fixed by the appropriate government. Minimum wages and "wages" under the Code are different things.
Bonus and gratuity
Gratuity for service on or after 21 November 2025 is calculated on the revised wage definition. Review bonus calculations against the Code on Wages.
Overtime
Under the revised wage framework, overtime sits inside the 50% test, so check the effect on pay.
Settlement dues
Final settlements need the new wage base and the Industrial Relations Code's rules on retrenchment and notice.
What Late and Wrong Filings Cost
Rates under the transitional framework can change, so use this table to size the risk and the portals to compute the exact figure:
| Default | Consequence |
| PF or ESI paid or filed late | Interest and damages. Historically, 12% interest a year plus damages that rise with delay; confirm the current rate with EPFO and ESIC |
| TDS not deducted | Interest of 1% per month from the date it should have been deducted |
| TDS deducted but not deposited | Interest of 1.5% per month, plus possible prosecution risk |
| Late TDS return | Late fee of ₹200 a day, capped at the TDS amount |
| Professional tax or LWF default | State-specific interest and penalty |
Payroll Compliance Checklist for India
Run through this before every payroll cycle:
PF, ESI, professional tax, and LWF registrations in every state where you employ people
Wage structure tested against the 50% rule
PF ceiling set to ₹25,000 in payroll from 17 September 2026
Employee tax regime declarations collected on Form 122
TDS section references updated to Section 392
Calendar for the 7th, 15th, and state-specific dates
Quarterly Form 138 schedule: 31 July, 31 October, 31 January, 31 May
Form 130 issue date: 15 June
Registers, payslips, and challans retained
Monthly reconciliation of payroll, challans, and returns
Mistakes We See Most Often
Applying the old ₹15,000 PF ceiling after 17 September
Filing a quarterly return under a retired form number
Treating professional tax as one national schedule
Restructuring salaries for the 50% rule without checking the PF and gratuity cost
Paying contributions on time but filing the ECR late
How LEGALDEV INDIA Runs Your Payroll Compliance
Our team brings over ten years of hands-on work in Indian corporate compliance, MCA filings, LLP incorporation, and tax audit support for startups and SMEs.
1
We Review Your Setup
Salary structure, headcount by state, and registrations.
2
We Set Up the Calendar and Rules
Our CA and legal team sets up the calendar and the calculation rules.
3
We File Every Month
PF, ESI, TDS, and state returns prepared and filed, with challans shared.
4
You Get a Monthly Report
A compliance report and a reminder list for what is next.
Start your payroll compliance setup →
Pricing
| Plan | Covers | Price |
| Statutory filings only | PF, ESI, TDS, PT, LWF returns | [₹ - insert] |
| Payroll processing plus filings | Salary run, payslips, and all statutory filings | [₹ - insert] |
| Compliance health check | Wage structure review and gap report | [₹ - insert] |
| Backlog clean-up | Pending months, quoted after review | Quote on request |
Pricing is per employee band and per state. Government fees, interest, and late fees are paid at actuals. See the pricing page.
Frequently Asked Questions
Got questions? Find clear answers from our compliance team:
It is the set of legal duties tied to paying salary: correct wage calculation, statutory deductions, timely payments, returns, and record-keeping.
₹25,000 per month from 17 September 2026, up from ₹15,000.
By the 15th of the month following the wage month.
One. The ECR carries both periods, with 1 to 16 September on ₹15,000 and 17 to 30 September on ₹25,000.
₹21,000 per month. It did not change with the EPF ceiling.
3.25% for the employer and 0.75% for the employee.
Form 138 for salary TDS from 1 April 2026.
By 15 June for the previous year. Under the new Act, the salary certificate is Form 130.
31 July, 31 October, 31 January, and 31 May for the four quarters.
If excluded allowances exceed 50% of total remuneration, the excess is added to wages for PF, gratuity, and similar calculations.
No. Rates, thresholds, and due dates differ, and some states do not levy it.