Payroll Compliance in India: TDS on Salary, EPF, ESI and Best Practices

30 Jan 2026

Updated: May 2026

Payroll Compliance in India: TDS on Salary, EPF, and ESI — A Complete Guide for Employers

Payroll compliance in India sits at the intersection of three distinct statutory frameworks — the Income Tax Act, 1961 (TDS on salary under Section 192), the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF), and the Employees' State Insurance Act, 1948 (ESI). Errors in any one of these frameworks attract interest, penalties, and in the case of EPF and ESI, criminal liability for the employer. This guide provides an accurate, current reference for each obligation as applicable from FY 2025-26.

TDS on Salary: Section 192 — Key Changes for FY 2025-26

Under Section 192, every employer is required to deduct TDS from salary at the time of payment based on the employee's estimated annual income and the applicable tax regime. The Finance Act 2025 introduced a material change: the new tax regime under Section 115BAC is now the default. Unless an employee submits a written declaration opting for the old regime — exercised through Form 10-IEA — the employer must compute and deduct TDS at new regime rates.

New regime slabs applicable from FY 2025-26: Nil up to ₹4 lakh; 5% from ₹4–8 lakh; 10% from ₹8–12 lakh; 15% from ₹12–16 lakh; 20% from ₹16–20 lakh; 25% from ₹20–24 lakh; 30% above ₹24 lakh. Standard deduction of ₹75,000 is available to salaried employees under the new regime.

TDS deposit and filing timelines:

• TDS deposit: by the 7th of the month following deduction (exception: TDS deducted in March must be deposited by 30 April)
• Quarterly TDS return — Form 24Q: Q1 by 31 July; Q2 by 31 October; Q3 by 31 January; Q4 by 31 May
• Form 16 (TDS certificate to employee): by 15 June of the following financial year

Failure to deduct or deposit TDS attracts interest under Section 201(1A): 1% per month for failure to deduct, and 1.5% per month from the date of deduction to the date of deposit. A penalty equal to the TDS amount may also be levied under Section 271C.

EPF: Employees' Provident Funds and Miscellaneous Provisions Act, 1952

Applicability: Establishments employing 20 or more persons. Once covered, the establishment remains covered even if headcount falls below 20.

Contribution rates:

• Employee: 12% of basic salary + Dearness Allowance (DA)
• Employer: 12% of basic + DA — 8.33% directed to the Employee Pension Scheme (EPS), capped at ₹1,250 per month (i.e., on wages up to ₹15,000/month); balance credited to the EPF account
• EDLI (Employees' Deposit Linked Insurance): 0.5% employer contribution — no employee contribution

Monthly filing: The Electronic Challan-cum-Return (ECR) must be filed and the contribution challan paid through the EPFO Unified Portal by the 15th of every month.

UAN and KYC: Every employee must have a Universal Account Number (UAN). KYC seeding — linking Aadhaar, PAN, and bank account to the UAN — is mandatory for employees to access PF withdrawal (Form 19), EPS withdrawal/scheme certificate (Form 10C), and inter-establishment transfer (Form 13). Employers are responsible for activating and verifying UAN for all employees.

Penalty for delayed filing: Damages under Section 14B at 5% to 25% per annum on arrears, depending on the duration of default.

ESI: Employees' State Insurance Act, 1948

Applicability: Establishments with 10 or more employees. Employees with gross wages up to ₹21,000 per month are covered (₹25,000 for persons with disabilities).

Contribution rates on gross wages:

• Employee: 0.75%
• Employer: 3.25%

ESI contributions are made across two contribution periods: April to September and October to March. Challans must be paid and returns filed by the 15th of the month following each contribution month.

Benefits available to Insured Persons (IPs): Sickness benefit (70% of average daily wages for up to 91 days), maternity benefit (100% of wages for 26 weeks), medical benefit (full medical care for self and dependants), disablement benefit, and dependants' benefit in case of death due to employment injury.

Portal and Registration Alignment

The MCA21 portal, EPFO Unified Portal, and ESIC employer portal all require consistent entity identification. The registered name and PAN of the employer entity must match identically across all portals. Discrepancies — which commonly arise after company name changes or mergers — cause ECR filing failures and ESI challan rejections. A periodic reconciliation of registration details across portals is advisable.

Payroll Compliance Calendar — Key Deadlines

For integrated payroll compliance support covering TDS, EPF, and ESI for your business, visit www.smeadvisory.in.

Regi Tom Antony And Associates is a Chartered Accountant firm in Kakkanad, Kochi, providing payroll compliance management, TDS return filing, and EPFO/ESIC advisory services to businesses across Kerala and India. Reach us at letstalk@rtaandassociates.com.