Virevon Insights

Tag: PF

  • Payroll Compliance in India: PF, ESI, Professional Tax and TDS in One Calendar

    Payroll Compliance in India: PF, ESI, Professional Tax and TDS in One Calendar

    Running payroll in India means more than paying salaries on time. Every month the employer must deduct and deposit provident fund, employees’ state insurance, professional tax and income tax, and then file returns on a separate cycle. Missing any one of these can bring interest, damages or a notice, even when the amounts are small. A single calendar for payroll compliance in India is the simplest way to keep everything in order.

    This guide sets out the key statutory dates, explains what each one involves and shares a few habits that make month-end payroll smoother. It reflects the new income-tax form numbers from 1 April 2026 and the EPF wage ceiling of ₹25,000 from 17 September 2026.

    Key takeaways

    • Salary TDS is deposited by the 7th of the following month (30 April for March).
    • PF and ESI contributions are paid, and the PF ECR filed, by the 15th of the following month.
    • Quarterly salary TDS statements are now filed in Form 138 (earlier Form 24Q), and salary TDS certificates are issued in Form 130 (earlier Form 16).
    • Professional tax and labour welfare fund rules differ by State; confirm the rules where each employee works.
    • Under the labour codes, monthly wages should be paid by the 7th of the following month.

    The monthly payroll compliance calendar

    Date (following month)ComplianceNotes
    7thPay salaries (monthly wage period)Required under the Code on Wages
    7thDeposit TDS on salary30 April for deductions made in March
    15thPay PF and file the ECREmployee 12% and employer 12% of PF wages
    15thPay ESI contributionsFor employees earning up to ₹21,000 a month
    As per StatePay professional taxMonthly, quarterly or annual depending on the State and employer size
    As per StateLabour welfare fundMonthly, half-yearly or annual in States that levy it

    A practical rule: finalise payroll and statutory computations by the 1st or 2nd working day, so salaries go out well before the 7th and statutory payments before the 15th.

    Provident fund (PF)

    • Applies to establishments with 20 or more employees, and voluntarily to others.
    • Contributions are 12% from the employee and 12% from the employer on PF wages; part of the employer’s share goes to the Employees’ Pension Scheme (EPS).
    • From 17 September 2026 the wage ceiling for mandatory coverage is ₹25,000 a month, up from ₹15,000. September 2026 contributions needed a split computation in one ECR.
    • The ECR (electronic challan cum return) is filed on the EPFO portal and payment made against it by the 15th.
    • New joiners must be linked to a UAN with Aadhaar-seeded KYC.

    Late payment can attract interest and damages, so the 15th is worth treating as a hard deadline.

    Employees’ State Insurance (ESI)

    • Applies to employees earning up to ₹21,000 a month in covered establishments.
    • Contribution rates are 0.75% from the employee and 3.25% from the employer.
    • Contributions are paid monthly by the 15th through the ESIC portal.
    • Register new employees on the portal before or on the day of joining so that medical benefits are available from day one.

    Professional tax and labour welfare fund

    Professional tax is a State levy with a constitutional ceiling of ₹2,500 a year per person. Rates, slabs and payment frequency vary: some States such as Maharashtra and Karnataka levy it, while others such as Uttar Pradesh and Delhi do not. Employers with staff in several States need a separate registration and return for each State that levies it.

    Labour welfare fund contributions are similar: small amounts, but State-specific and easy to overlook.

    TDS on salary under the new Income-tax Act

    From 1 April 2026 the Income-tax Act 2025 applies to salary paid in the tax year 2026-27. The substance of salary TDS is familiar, but several form numbers have changed:

    PurposeEarlier formNew form
    Quarterly TDS statement on salaryForm 24QForm 138
    Salary TDS certificateForm 16Form 130
    Employee’s declaration of claimsForm 12BBForm 124

    Quarterly statement due dates remain 31 July, 31 October, 31 January and 31 May. The annual salary certificate is issued after the year ends, typically by mid-June. Our guide to new income-tax form numbers lists the full mapping.

    Each month, compute TDS on projected annual salary under the regime the employee has chosen, and adjust for declarations and proofs. Late deposit or late statements can bring interest and fees; our article on TDS default notices explains how these are computed.

    Annual and event-based tasks

    1. Start of the year: collect regime choice and investment declarations; update salary structures and the 50% wages test under the labour codes.
    2. January to March: collect investment proofs and finalise TDS for the year.
    3. After year-end: file the Q4 statement by 31 May and issue Form 130 certificates.
    4. Bonus: pay statutory bonus within the prescribed time after the close of the accounting year, where applicable.
    5. Exits: complete full and final settlement within two working days of the last working day, including gratuity where due.
    6. Registers and returns: maintain wage, attendance and leave records in the formats applicable in your State.

    For how the labour codes affect salary structure, PF and gratuity, see our guide on new labour codes and payroll.

    Habits that keep payroll compliance on track

    • One master calendar for every State and entity, with owners and reminder dates.
    • Monthly reconciliation of payroll register, PF ECR, ESI challan, TDS challan and the bank statement.
    • Employee master hygiene: PAN, Aadhaar, UAN, ESIC number and bank details verified at joining.
    • Maker-checker review before payments are released.
    • A compliance folder each month with challans, acknowledgements and reconciliations, ready for any inspection or query.

    Frequently asked questions

    What is the due date for PF and ESI payment?

    Both are due by the 15th of the month following the wage month.

    When should TDS on salary be deposited?

    By the 7th of the following month, and by 30 April for deductions made in March.

    Is Form 24Q still used for salary TDS?

    For the tax year 2026-27 onwards, the quarterly salary TDS statement is Form 138. Statements for earlier periods continue under the old forms.

    Is professional tax payable in every State?

    No. It is levied only by some States, and rates and due dates vary, so check the rules in each State where you have employees.

    If you would like help setting up a payroll compliance calendar or taking payroll off your plate altogether, our team is happy to support you.

    WhatsApp +91 83687 74072
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    This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

  • New Labour Codes and Payroll: What Changes for Salary Structure, PF and Gratuity

    New Labour Codes and Payroll: What Changes for Salary Structure, PF and Gratuity

    The four labour codes came into force on 21 November 2025, replacing 29 older central labour laws. For most businesses, the biggest practical effect of the new labour codes on payroll is not a new form or register, but a change in how salary itself is measured. A single definition of “wages” now drives provident fund, gratuity, bonus and other statutory amounts.

    Add to that the separate increase in the EPF wage ceiling to ₹25,000 from 17 September 2026, and many salary structures designed around a low basic pay now need a fresh look. This guide explains what has changed, shows the impact with a simple example and sets out a sensible plan for employers.

    Key takeaways

    • “Wages” means basic pay, dearness allowance and retaining allowance; most other allowances are excluded, but only up to 50% of total remuneration.
    • If excluded components exceed 50%, the excess is added back to wages, which raises the base for PF and gratuity.
    • The EPF wage ceiling moved from ₹15,000 to ₹25,000 from 17 September 2026, bringing more employees into mandatory coverage.
    • Fixed-term employees become eligible for gratuity after one year of continuous service.
    • Full and final settlement is due within two working days of exit, and monthly wages by the 7th of the following month.

    The single definition of wages and the 50% rule

    Under the Code on Wages 2019 (and the matching definitions in the other codes), wages include basic pay, dearness allowance and retaining allowance. Items such as house rent allowance, conveyance, statutory bonus, overtime, commission and the employer’s contribution to PF are excluded.

    The important proviso is the 50% cap. If the excluded items together exceed half of the total remuneration, the amount above 50% is treated as wages. In simple terms, at least half of an employee’s pay must count as wages for statutory calculations, whatever the components are called.

    Structures where basic pay was 30–40% of gross, with a large special allowance, are the ones most affected.

    Worked example: the effect on one salary

    Consider an employee with a monthly gross salary of ₹50,000.

    ComponentBefore reviewUnder the 50% rule
    Basic pay₹15,000₹15,000
    HRA₹12,000₹12,000
    Special allowance₹23,000₹23,000
    Excluded items (HRA + special)₹35,000 (70%)Capped at ₹25,000 (50%)
    Wages for statutory purposes₹15,000₹25,000
    Employer PF at 12%₹1,800 (if restricted to old ceiling)₹3,000
    Gratuity accrual per year (15/26 of monthly wages)about ₹8,654about ₹14,423

    The gross salary is unchanged, but the statutory base has risen by ₹10,000. If CTC stays fixed, the employee’s take-home pay falls slightly because their own PF deduction increases, while the retirement benefits build up faster. Employers should check the latest EPFO guidance on how the new wage definition interacts with PF computation for their specific structure.

    PF: the new ₹25,000 ceiling

    Separately from the codes, the EPF wage ceiling has been raised to ₹25,000 per month with effect from 17 September 2026. Practical points for payroll teams:

    • Employees earning up to ₹25,000 are now mandatorily covered under EPF, EPS and EDLI.
    • The employer’s 12% contribution is split between EPS (8.33%, on wages up to the ceiling) and EPF, so EPS on a ₹25,000 ceiling comes to about ₹2,083 a month.
    • September 2026 needs a split calculation for the days before and after 17 September, filed in a single ECR.
    • Employees already contributing on higher wages under existing arrangements can generally continue.

    Gratuity under the new labour codes

    The gratuity formula of 15 days’ wages for each completed year, and the tax exemption limit of ₹20 lakh, remain. What changes is:

    • The base. Gratuity is calculated on wages as now defined, so a higher wage base means higher gratuity. There is no ceiling on the wage used for gratuity.
    • Fixed-term employees. They qualify on a pro-rata basis after one year of continuous service, instead of five.
    • Accounting. The actuarial liability for gratuity (under Ind AS 19 or AS 15) should be revalued, and the impact may need disclosure in the financial statements.

    Payment timelines and paperwork

    The codes also tighten several operational points that affect the payroll calendar:

    1. Monthly wages must be paid by the 7th of the following month.
    2. Full and final settlement on resignation, termination or retrenchment must be made within two working days of the last working day. This often requires changes to clearance and approval workflows.
    3. Appointment letters are required for every employee.
    4. Overtime is payable at not less than twice the ordinary rate of wages.

    State rules are still being notified in phases. Where final state rules are pending, existing registers and returns generally continue until replaced, so it is sensible to track your State’s labour department updates.

    A practical plan for employers

    1. Run a salary audit. List every employee’s components and test the 50% rule. Flag anyone whose wages increase.
    2. Quantify the cost. Estimate the extra employer PF, EDLI and admin charges, and the higher gratuity provision.
    3. Decide on the approach. Either absorb the higher employer cost or restructure CTC transparently. Communicate clearly with employees about take-home pay and the benefit of higher retirement savings.
    4. Update payroll software for the new wage definition and the ₹25,000 ceiling, including the split September calculation.
    5. Revise exit processes to meet the two-day settlement timeline.
    6. Refresh documentation: appointment letters, salary structure policies and HR handbooks.

    A clean month-end process makes these changes easier to absorb; our month-end close checklist includes payroll and statutory accruals. For TDS on salary, see our TDS rate chart for FY 2026-27.

    Frequently asked questions

    Do the new labour codes require basic pay to be 50% of salary?

    Not exactly. They require that excluded allowances do not exceed 50% of total remuneration; anything above that is treated as wages. Many employers simply raise basic pay to meet the test.

    Will employees’ take-home pay reduce?

    If CTC stays the same and wages rise, the employee’s PF deduction increases, so take-home pay may reduce slightly, while retirement savings and gratuity increase.

    When do fixed-term employees get gratuity?

    After one year of continuous service, on a pro-rata basis.

    How soon must final dues be paid after an employee leaves?

    Within two working days of the last working day, under the Code on Wages.

    If you would like help reviewing salary structures, updating payroll for the new codes or revaluing gratuity, our payroll team is happy to help.

    WhatsApp +91 83687 74072
    Send an enquiry

    This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.