Statutory payroll in India: a plain-English guide to PF, PT and TDS

For a growing Indian company, paying salaries is the easy part. The harder part is everything the law asks an employer to deduct, contribute, deposit and report along the way. Provident Fund, Professional Tax and TDS on salary are the three obligations almost every company meets first, and getting them wrong leads to interest, penalties and unhappy employees whose records do not match.

This guide explains each one in plain English: what it is, who it applies to, how it is calculated in broad terms and when it must be paid and filed. It is written for founders, HR leads and finance leads who need a working understanding, not for tax specialists.

Why statutory payroll deserves attention early

When a company has a handful of employees, statutory deductions can feel like a formality handled by the CA once a month. As headcount grows, the obligations multiply: more employees crossing thresholds, people in different states, mid-year joiners carrying income from a previous employer, and employees asking for their PF balance or Form 16. Mistakes become more expensive and harder to unwind because they involve government portals, not just internal records.

The good news is that the underlying concepts are stable and learnable. Once you understand the logic of each deduction, the monthly routine is largely predictable.

Provident Fund (EPF)

What it is

The Employees' Provident Fund is a retirement savings scheme administered by the Employees' Provident Fund Organisation (EPFO). Both the employee and the employer contribute every month, and the money builds up in the employee's account with interest.

Who it covers

Establishments above a specified size are required to register with EPFO. Within a covered establishment, employees whose basic wages (plus dearness allowance) are up to ₹15,000 a month are mandatorily covered. Employees earning above that ceiling may also be enrolled, and many companies choose to cover all employees. Your policy here should be decided deliberately with your CA, because it affects both cost and take-home pay.

How it is calculated

The basic rule is simple: the employee contributes 12% of basic wages plus DA, deducted from salary, and the employer contributes a matching 12%. Part of the employer's share goes to the Employees' Pension Scheme rather than the provident fund account, and there are administrative charges on top. Many employers calculate contributions on the ₹15,000 ceiling for employees earning above it, while others contribute on actual basic wages; again, this is a policy choice to confirm with your adviser.

For example, an employee with basic wages of ₹14,000 a month would have ₹1,680 deducted as their 12% contribution, and the employer would contribute a matching ₹1,680 split across the provident fund and pension scheme.

Because PF is calculated on basic wages, the way you split gross salary into Basic and allowances directly affects PF. This is one reason a written salary structure matters.

UAN, ECR and deposit

Every member has a Universal Account Number (UAN), which stays with them across employers. When a new employee joins, ask for their existing UAN rather than creating a new one, otherwise their history is split across accounts.

Each month, the employer files an Electronic Challan cum Return (ECR) on the EPFO portal, listing every member's wages and contributions, and pays the total. The deposit is due by the 15th of the following month. Late payment attracts interest and damages, so it is worth treating the 15th as a hard deadline.

Professional Tax (PT)

What it is

Professional Tax is a tax levied by state governments on people earning an income from employment, a profession or a trade. For salaried employees, the employer deducts it from salary and pays it to the state.

Where it applies

Not every state levies Professional Tax, and those that do set their own slabs, rates, registration rules and due dates. The amount usually depends on the employee's monthly salary band. The Constitution caps Professional Tax at ₹2,500 per person per year, so whatever the state slabs say, an individual's annual PT cannot exceed that amount.

What this means in practice

The relevant state is generally where the employee works, not where the company's head office is. A company with offices or employees in several states may need PT registration in each of them, with different slabs and filing schedules. When an employee moves location, their PT state may change too. Keep each employee's work location accurate in your records, and maintain the slab table for every state you operate in.

TDS on salary (section 192)

What it is

Under section 192 of the Income-tax Act, an employer paying salary must deduct income tax at source (TDS) from it. The tax is the employee's own income tax; the employer collects it monthly and pays it to the government on the employee's behalf.

How the monthly amount is worked out

TDS on salary is not a flat percentage. At the start of the financial year, and whenever something changes, the employer estimates each employee's total taxable income for the year, works out the tax due on it, and spreads that tax across the remaining months.

The calculation depends on the tax regime the employee chooses. The new tax regime is the default; an employee who wants the old regime, with its various deductions and exemptions, must tell the employer. Under the old regime, employees declare their planned investments and expenses at the start of the year and submit proofs later, and the employer adjusts TDS accordingly. Mid-year joiners should share details of salary and tax deducted by their previous employer so the projection is complete.

Because the calculation is a projection, it must be revised when salary changes, when proofs are submitted or when the employee's circumstances change. Recalculating only once a year is a common cause of large deductions in the final months.

Deposit, returns and Form 16

• Deposit: TDS deducted in a month is deposited by the 7th of the following month, with a different due date for tax deducted in March.
• Quarterly return: the employer files Form 24Q every quarter, reporting salary paid and tax deducted for each employee. This is what makes the tax appear against the employee's PAN.
• Form 16: after the financial year ends, the employer issues Form 16 to each employee, a certificate of salary paid and tax deducted, which the employee uses to file their own return.

Accurate PANs are essential. A missing or incorrect PAN can mean tax is not credited to the employee and may require deduction at a higher rate.

A brief note on ESI

The Employees' State Insurance scheme provides medical and cash benefits to employees in lower wage bands, funded by employer and employee contributions. It applies to covered establishments and to employees whose wages fall within the scheme's limit. Many knowledge-economy companies have few or no employees in that band, but interns, support staff and some junior roles may qualify. Check with your CA whether ESI applies to your establishment and to which employees.

Your compliance calendar

The table below summarises the main recurring obligations covered in this guide. State PT due dates vary, so fill in the dates for your states.

Keeping it under control

Statutory payroll goes wrong mainly through inconsistency: a deduction calculated one way this month and another way next month, a wrong state for PT, a TDS projection never revised, or a paid month quietly edited afterwards. Payroll software that applies the rules the same way every month, and keeps paid months fixed, removes most of that risk.

Techno IQ runs statutory payroll with PF, PT and TDS worked out for each employee, takes attendance and approved leave (including leave without pay) as inputs, generates payslips and locks each month once it is marked paid. Your CA still has an essential role in confirming the set-up and keeping you current as rules change.

If you would like to see how this works on your own payroll, book a demo of Techno IQ and we will walk you through a month from attendance to payslip.