Payroll Compliance Checklist for India: PF, ESI, TDS, and the Rest

The Seven Statutory Acts Every Indian Employer Should Know

• EPF & MP Act, 1952: applies at 20 employees.
• ESI Act, 1948: at 10 employees in most states, 20 in a few. Wage threshold ₹21,000 gross per month.
• Income Tax Act, 1961, Section 192: TDS on salary, regardless of company size.
• Payment of Gratuity Act, 1972: at 10 employees, kicks in at 5 years of service.
• Payment of Bonus Act, 1965: at 20 employees, covers anyone up to ₹21,000 basic+DA per month.
• Professional Tax (state): Maharashtra, Karnataka, West Bengal, Tamil Nadu, Telangana, Gujarat, Andhra Pradesh, Kerala, and a few more. Capped at ₹2,500 per year.
• Labour Welfare Fund (state): small employer + employee contribution where notified.

POSH (Sexual Harassment of Women at Workplace Act, 2013) also kicks in at 10 employees.

PF: the EPFO Calendar You Cannot Miss

PF is 12% employer + 12% employee on basic+DA, capped at ₹15,000 per month. Computing on full basic is allowed, but once you opt in above the cap you cannot quietly opt out later. Of the employer's 12%, 8.33% goes to EPS (same cap) and the rest to EPF. EDLI and admin charges sit on top.

• ECR upload and challan: by the 15th of the following month on the EPFO Unified Portal.
• Form 5A: ownership return, updated on management change.
• Form 11: declaration from every new joiner about prior PF membership.
• Form 12A: consolidated monthly return, largely absorbed into the ECR.

Section 14B damages run typically 5% to 100% on the unpaid amount depending on delay. Section 7Q adds 12% per annum interest. Inspections do happen, and they ask for three years of records.

ESI: 10 Employees, ₹21,000 Threshold

ESI is 3.25% employer + 0.75% employee on gross wages, threshold ₹21,000 per month. If an employee crosses it mid-period, keep deducting till the contribution period ends (April-September or October-March), then stop. Challans are due by the 15th on the ESIC portal, and every new joiner needs an ESIC declaration before first wage payment. Late deposit attracts typically 12% per annum interest and up to 25% damages. Bigger risk: if a covered employee or dependant has a medical claim during an unpaid period, the employer pays the hospital bill directly.

TDS on Salary: Section 192, Form 24Q, and Form 16

TDS on salary sits under Section 192 of the Income Tax Act, 1961. At the start of the year or on joining, every employee declares their regime (old or new) and proposed investments. You compute estimated annual tax, divide by 12, deduct that much monthly.

• Monthly TDS deposit: by the 7th of the following month using ITNS 281. March: by 30 April.
• Form 24Q quarterly: Q1 by 31 July, Q2 by 31 October, Q3 by 31 January, Q4 by 31 May.
• Form 16: Part A from TRACES, Part B from the employer, both to employees by 15 June.
• Form 12BA: perquisites statement, issued with Form 16 where applicable.

Late deduction draws 1% per month interest. Late deposit draws 1.5% per month. Late Form 24Q carries ₹200 per day under Section 234E, capped at the TDS amount. Section 271H can add ₹10,000 to ₹1,00,000 for non-filing or wrong filing.

Professional Tax, LWF, and the State-by-State Trap

Professional Tax is a state subject. Slabs and schedule both vary (verify the latest state notification):

• Maharashtra: ₹200 per month for most brackets, ₹300 in February. Annual cap ₹2,500.
• Karnataka: ₹200 per month above the slab threshold, monthly return.
• West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Gujarat, Kerala: own slab table and cycle each. Some monthly, some half-yearly.

Labour Welfare Fund applies in Maharashtra, Karnataka, Tamil Nadu, Gujarat, Delhi, Haryana, West Bengal, and a few more. Contributions are small but easy to miss when you open a branch in a new state. Shops & Establishments registration also matters: most states want it within 30 days.

Gratuity and Bonus: the Annual Provisioning Items

Gratuity (Payment of Gratuity Act, 1972): eligibility at 5 completed years, with the carve-out that 4 years and 240 days in the fifth year qualifies. Formula: (last drawn basic+DA × 15 × completed years) / 26. Tax exemption up to ₹20 lakhs for non-government employees, raised from ₹10 lakhs in 2018.

Bonus (Payment of Bonus Act, 1965): anyone earning up to ₹21,000 basic+DA per month qualifies if they've worked 30 days in the year. Minimum 8.33%, maximum 20%, on ₹7,000 or the applicable minimum wage, whichever is higher. Form C records bonuses paid, Form D is the annual return. Provision both monthly, not as a year-end surprise.

The Compliance Calendar at a Glance

• 7th of every month: TDS deposit via ITNS 281. March: by 30 April.
• 15th of every month: PF ECR + challan, ESI contribution + challan.
• State-specific: Professional Tax (often last day of month). LWF often half-yearly (30 June, 31 December), verify locally.
• 31 July, 31 October, 31 January, 31 May: Form 24Q for Q1, Q2, Q3, Q4.
• 15 June: Form 16 to all employees.
• 31 December: POSH annual report to the District Officer.

POSH: the 10-Employee Trigger Most Companies Get Wrong

The Sexual Harassment of Women at Workplace Act, 2013, applies at 10 or more employees. Three things are mandatory.

• Internal Committee: minimum four members, presided by a senior woman employee, with at least one external member from an NGO.
• Awareness training: for all employees, with documented attendance. IC members need separate, deeper training.
• Annual report: to the District Officer covering complaints received, disposed, and pending. Due 31 December.

Penalties start at ₹50,000 for non-constitution of the IC, and repeat defaults can cost a business licence.

Common Mistakes We See on Audit

• Applying the ₹15,000 PF cap to an employee already on full basic at a prior employer. Once opted in above the cap, they stay opted in.
• Switching TDS regime mid-year and forgetting to amend Q3 and Q4 Form 24Q.
• Opening a branch in a new PT or LWF state and missing the registration window.
• Treating long-term contractors as outside payroll when PF and ESI sometimes still apply.
• Provisioning gratuity only at exit. The actuarial gap shows up in audit.
• Paying Diwali bonus ad-hoc and forgetting Form D under the Payment of Bonus Act.

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