The moment you hire your first employee, you step into a compliance framework that most small business owners underestimate. It is not just salary. It is Employees' Provident Fund, Employees' State Insurance, professional tax (in most Indian states), TDS deducted at source on salaries, and a quarterly reporting cycle that sits alongside all your other compliance obligations. Miss any one pillar and you are looking at penalty proceedings — from three separate authorities.
This guide covers each payroll compliance obligation for FY 2026–27, the thresholds that trigger them, and how to stay on top of the cycle. For businesses that want payroll handled completely, our accounting team manages end-to-end payroll compliance.
Employees' Provident Fund (EPF)
EPF is governed by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, administered by the EPFO.
| Parameter | Detail |
|---|---|
| Applies to | 20+ employees |
| Employer contribution | 12% of basic + DA |
| Employee contribution | 12% of basic + DA |
| Of employer's share → EPS | 8.33% capped ₹1,250/mo |
| Salary cap (compulsory) | ₹15,000/mo basic |
| Deposit deadline | 15th of next month |
| Filing | Monthly ECR |
Watch the headcount threshold: Many small businesses hover near the 20-employee mark. Once you cross it — even temporarily — EPF registration becomes mandatory within 30 days and retroactive contributions may apply.
Employees' State Insurance (ESI)
ESI provides health and maternity benefits to covered employees, administered by the ESIC.
| Parameter | Detail |
|---|---|
| Applies to | 10+ employees |
| Wage ceiling | ₹21,000/mo gross ₹25,000 for PwD |
| Employer contribution | 3.25% of gross |
| Employee contribution | 0.75% of gross |
| Deposit deadline | 15th of next month |
| Filing | Half-yearly 11 May & 11 Nov |
Professional Tax
Professional tax is a state-level levy on income from employment (and self-employment in some states). It is not income tax — it is a separate deduction that employers make from employee salaries and remit to the state government. Rates and slabs vary by state.
Karnataka slabs for FY 2026–27:
| Monthly salary | Professional tax |
|---|---|
| Up to ₹25,000 | Nil |
| ₹25,001 and above | ₹200/mo flat ₹2,400/year |
Karnataka employers must register for PT, deduct from salary monthly, and remit by the 20th of the following month. An annual return is also required. Other states (Maharashtra, Tamil Nadu, Andhra Pradesh, etc.) have their own rates and filing portals.
TDS on salary (Section 192)
Every employer must deduct income tax from salaries at the applicable rate and deposit it with the government. Unlike other TDS sections, there is no fixed rate — you compute each employee's estimated annual income, apply the appropriate tax slab (under whichever regime they have chosen), and deduct proportionally each month.
- Regime declaration: Collect Form 12BB from each employee at the start of the year — it declares their investment and deduction claims so you can compute TDS correctly.
- Deposit: 7th of the following month (30 April for March salary).
- Quarterly returns: Form 24Q — 31 July, 31 October, 31 January, 31 May.
- Form 16: Issue to each employee by 15 June after year-end, covering salary paid and TDS deducted for the full year.
The payroll compliance calendar
| When | What is due |
|---|---|
| 7th of next month | TDS on salary deposited (challan ITNS 281) |
| 15th of next month | EPF (ECR) & ESI contributions |
| 20th of next month | Professional tax (Karnataka) |
| Quarterly | Form 24Q (TDS return) — 31 Jul / 31 Oct / 31 Jan / 31 May |
| Half-yearly | ESI return — 11 May / 11 Nov |
| 30 April | Karnataka PT annual return + employer enrolment (PTEC) payment |
| 15 June | Form 16 issued to all employees |
Frequently asked questions
Is EPF mandatory if I have fewer than 20 employees?
Not mandatory, but voluntary registration is possible with employee consent. Once you cross 20 employees, registration becomes mandatory within 30 days. And note: once you are registered — voluntarily or otherwise — EPF coverage continues even if your headcount later drops below 20. Many businesses register early anyway, since employees value the PF benefit.
Can employees opt out of EPF?
Employees whose basic salary exceeds ₹15,000/month at the time of joining can choose not to contribute. Existing employees who were contributing cannot opt out. Both employer and employee must agree to opt out.
What if an employee does not declare their tax regime?
If an employee does not submit Form 12BB or make a regime declaration, the employer must compute TDS under the new regime (the default). The employee can then switch regimes when filing their personal ITR.
Is professional tax deductible in the employee's income tax return?
Yes. Professional tax paid is deductible from gross salary income before computing taxable income under the Income-tax Act — but only under the old regime.
Outsource your payroll compliance completely. Our team handles EPF/ESI registration and monthly challans, professional tax deposits, TDS computation and quarterly 24Q filings, and Form 16 generation — every month, on time.
Payroll compliance handled end to end
EPF, ESI, PT, TDS — we handle every deduction, deposit and quarterly filing for your payroll so your employees' records are always accurate and you never miss a deadline.