Every salary slip in India carries four statutory deductions that answer to four different regulators, four different rulebooks, and four different due dates. Provident Fund and ESI protect the employee’s retirement and health. Professional Tax funds the state exchequer. TDS collects income tax on behalf of the Centre. A payroll manager who mixes up their thresholds, or misses a filing date on any one of them, is the person explaining a penalty notice to the CFO.
This guide lays out what each deduction covers, who it applies to, and when it falls due, in the sequence a new payroll hire would actually need it.
Provident Fund: Retirement Savings With A Headcount Trigger
Provident Fund becomes mandatory the day an establishment crosses 20 employees, under the Employees’ Provident Fund Scheme, 2026, which replaced the 1952 scheme on 29 June 2026 under the Code on Social Security, 2020. Coverage does not lapse if headcount later drops below 20. The Employees’ Provident Fund Organisation administers the scheme, and once an establishment is in, it stays in until formal closure.
Both employer and employee contribute 12% of PF wages, capped at a wage ceiling of ₹15,000 a month, which has been held since September 2014 and was not revised when the new scheme took effect. On that ceiling, the mandatory contribution works out to ₹1,800 a month from each side. A Bengaluru SaaS company running 18 engineers today and 22 by the next quarter picks up the same registration duty as a Coimbatore textile unit, TPB’s guide on when PF becomes mandatory points out, regardless of sector.
Employers split their share across three linked schemes rather than paying a flat 12% into one pot:
| Scheme | Employer Share | What It Funds |
| Employees’ Provident Fund | 3.67% | Retirement corpus, withdrawable lump sum |
| Employees’ Pension Scheme | 8.33% | Monthly pension from age 58 |
| Employees’ Deposit Linked Insurance | 0.50% (admin/employer-funded) | Life insurance for nominees |
Contributions are filed monthly through the Electronic Challan cum Return on the EPFO portal. Employees moving jobs carry their Universal Account Number forward, so an HR team’s real job at offboarding is making sure the UAN gets transferred rather than opening a fresh account, a distinction TPB has covered in detail in its guide to PF transfers when employees change jobs.
ESI: Health Cover Tied To A Wage Ceiling, Not A Headcount
ESI applies once an establishment employs 10 or more people (20 in some states for shops and commercial establishments, Maharashtra among them), and covers any employee earning up to ₹21,000 a month in gross wages, or ₹25,000 for employees with disabilities. Unlike PF, coverage is wage-based rather than a flat entitlement. An employee who crosses the ceiling mid-cycle stays covered until the end of the current six-month contribution period, which runs from April to September or October to March.
The Employees’ State Insurance Corporation sets the contribution at 4% of gross wages in total: 3.25% from the employer, 0.75% from the employee. Employees earning a daily average wage of ₹176 or less are exempt from their own share, though the employer must still pay the full 3.25% on their behalf.
- Contribution deducted monthly, calculated on gross wages, not CTC
- Deposited to ESIC by the 15th of the following month
- Covers medical, sickness, maternity, disability, and dependent benefits
TPB’s guide on ESIC eligibility breaks down exactly which components of a payslip count as ESIC wages, since HRA, city allowance, and overtime are all included while items like annual bonus typically aren’t.
Professional Tax: The One Rule That Changes By State
Professional Tax is the outlier in this list because it isn’t a central levy at all. Article 276 of the Constitution caps what any state can collect at ₹2,500 a year, but the slabs, exemption thresholds, and due dates are set independently by each state that chooses to levy it. Delhi, Uttar Pradesh, Haryana, and Punjab don’t impose PT at all. Maharashtra, Karnataka, West Bengal, and most of the southern and eastern states do.
Karnataka raised its exemption threshold to ₹25,000 a month from April 2025, so salaries below that draw no PT at all; above it, the deduction is a flat ₹200 a month, rising to ₹300 in February to reach the ₹2,500 annual cap. Maharashtra runs a graded structure starting at ₹7,500 a month for men, with women exempt up to ₹25,000, and its monthly PT return moves to the 15th of the following month from March 2026 onward.
A payroll team running employees across even two of these states needs two separate registrations and two separate filing calendars, because PT compliance in one state carries no bearing on obligations in another. Getting this wrong doesn’t attract the kind of headline penalty PF or ESI defaults do, but it’s the compliance gap auditors find most often precisely because it’s treated as an afterthought.
| State | Monthly Salary Threshold | Amount Deducted | Annual Cap |
|---|---|---|---|
| Maharashtra | Above ₹7,500 (men); women exempt up to ₹25,000 | Graded slabs, rising to ₹200-₹300/month at higher salary bands | ₹2,500 |
| Karnataka | Above ₹25,000 | Flat ₹200/month (₹300 in February) | ₹2,500 |
| West Bengal | Above ₹10,000 | Tiered slabs by salary band | ₹2,400 |
| Andhra Pradesh / Telangana | Above ₹15,000 | Tiered slabs by salary band | ₹2,400 |
| Tamil Nadu | Set by local body (e.g., Greater Chennai Corporation), not state-wide | Half-yearly slabs, deducted from August and January salary | ₹2,400-₹2,500, depending on local body |
| Delhi, UP, Haryana, Punjab* | Not applicable | No Professional Tax levied | Not applicable |
*Punjab levies a separate ₹200/month Development Tax under a different Act, which is often left out of PT compilations but is still payable.
Tamil Nadu and Kerala both run PT half-yearly rather than monthly, so a payroll system built only for monthly deduction cycles will miss both states unless configured separately.
TDS On Salary: The Deduction Under A New Act
TDS on salary runs under Section 192, and the rule is deceptively simple: any employer paying salary above the exemption limit must estimate the employee’s full-year tax liability, divide it across the remaining months, and deduct proportionately at each payment. Where PF and ESI rates are fixed percentages, TDS depends entirely on the individual employee’s income slab, tax regime choice, and declared exemptions, recalculated whenever pay or investment declarations change.
The mechanics that matter for payroll teams running this monthly:
- TDS deducted between April and February must reach the government by the 7th of the following month; TDS deducted in March gets until 30 April.
- Employers file a quarterly return and issue an annual certificate showing every rupee deducted and deposited against each employee’s PAN.
The Income Tax Act, 2025, took effect on 1 April 2026 and renumbered the forms tied to this process. What payroll teams knew as Form 24Q (the quarterly return) and Form 16 (the annual certificate) now carry new form numbers under the Act, applicable to Tax Year 2026-27 onward; filings for periods before that date still use the old form numbers and old section references.
Interest on a late deposit runs at 1.5% a month, separate from the late-filing fee under Section 234E, so the deposit deadline matters even when the quarterly return itself has some slack.
| Deductor Type | TDS Deducted In | Deposit Due By |
|---|---|---|
| Non-government (private companies, most employers) | April to February | 7th of the following month |
| Non-government (private companies, most employers) | March | 30 April |
| Government office, paid via challan | Any month | 7th of the following month (same as non-government) |
| Government office, paid by book entry (no challan) | Any month | Same day as deduction |
| Compliance Step | Frequency | Deadline |
|---|---|---|
| Quarterly TDS return | Once a quarter | Last day of the month after quarter-end (Q4: 31 May) |
| Annual TDS certificate to employee | Once a year | Linked to Q4 return filing |
| Interest on late deposit | Per month of delay | 1.5% a month from date of deduction to date of deposit |
| Late-filing fee (separate from interest) | Per day of delay | ₹200 a day under Section 234E, capped at the TDS amount |
Where The Four Deductions Actually Overlap
None of the four exists in isolation on a payslip, and the overlaps are where compliance teams lose the most time. PF and ESI both apply to gross or PF wages depending on the scheme, but neither interacts with TDS calculations, since TDS runs off total taxable income after Section 80C and other deductions, PF contributions among them. Professional tax paid is itself deductible from gross salary for income tax purposes under both the old and new tax regimes, so a payroll system that doesn’t feed the PT figure into the TDS calculation is quietly overtaxing employees.
A useful way to hold the four together:
- PF and ESI are social security contributions, split between employer and employee, feeding welfare schemes.
- Professional Tax is a flat state levy with no employer contribution component.
- TDS is an advance collection of the employee’s own income tax, with no employer share at all.
Getting the sequencing right inside payroll software, and getting the definitions of “wages” consistent across all four (PF wages, ESI gross wages, and TDS taxable salary rarely match exactly), is most of what separates a clean statutory audit from a stack of show-cause notices. TPB’s broader payroll management glossary entry is a useful reference point for teams building or auditing this workflow from scratch.
In The End…
A single compliance calendar that tracks all four deduction cycles against their actual due dates works better than treating each as a separate monthly fire drill: PF and ESI against their respective monthly deadlines, PT against whichever state calendar applies, and TDS deposits by the 7th with quarterly returns tracked on their own timeline.
Payroll teams that run into penalty notices most often trace the root cause back to mismatched wage definitions across the four deductions, so the next payroll software configuration or audit is the right moment to reconcile PF wages, ESI gross wages, and TDS taxable salary against each other. The transition dates for the Income Tax Act, 2025 and the EPF Scheme, 2026 are still settling into standard practice this financial year, and that’s worth tracking closely rather than assuming last year’s calendar still holds.
FAQs
What statutory deductions appear on an Indian salary slip?
Four statutory deductions sit on most Indian payslips: Provident Fund and ESI, which fund retirement and health cover; Professional Tax, a state levy; and TDS, advance income tax collected for the Centre. Each answers to a different regulator, rulebook, and due date.
When does PF become mandatory for an employer?
Provident Fund registration becomes mandatory the day an establishment employs 20 or more people, across any sector. Coverage does not lapse if headcount later drops below 20. Both employer and employee contribute 12% of PF wages, capped at a ₹15,000 monthly wage ceiling.
What is the ESI wage ceiling and contribution rate?
ESI covers employees earning up to ₹21,000 a month in gross wages, or ₹25,000 for employees with disabilities. Total contribution is 4% of gross wages: 3.25% from the employer and 0.75% from the employee, deposited by the 15th of the following month.
Which Indian states do not charge professional tax?
Professional Tax is a state levy, not a central one, so it varies by location. Delhi, Uttar Pradesh, Haryana, and Punjab do not impose it at all. States that do, such as Maharashtra and Karnataka, cap annual collection at ₹2,500 under Article 276.
What is the due date for depositing TDS on salary?
TDS deducted on salary between April and February must reach the government by the 7th of the following month. TDS deducted in March gets until 30 April. Late deposits attract interest of 1.5% a month, separate from the late-filing fee under Section 234E.
Why do payroll penalty notices usually happen?
Most payroll penalty notices trace back to mismatched wage definitions across the four deductions, since PF wages, ESI gross wages, and TDS taxable salary rarely match exactly. A single compliance calendar tracking each deduction against its own due date prevents most filing misses.
