India payroll guide · 2026-09-07
Running payroll in India involves three interlocking statutory obligations: Employees' Provident Fund (EPF), Employees' State Insurance (ESIC), and Tax Deducted at Source (TDS). Miss a deadline or miscalculate a contribution and you face penalties, interest, and employee disputes. This guide gives you the current rates, the key dates, and the traps to avoid for FY 2025-26 (AY 2026-27).
EPF applies to every establishment with 20 or more employees. Once you cross that threshold, enrollment is mandatory for every employee earning up to ₹15,000 per month in basic wages plus Dearness Allowance (DA). Employees earning above ₹15,000 can voluntarily opt in.
Contribution rates:
Contribution — Employee — Employer
EPF (Provident Fund) — 12% of Basic + DA — 3.67% of Basic + DA
EPS (Pension Scheme) — Nil — 8.33% of Basic + DA (capped at ₹15,000 wage)
Total — 12% — 12%
The employer's 12% is split: 8.33% funds the Employee Pension Scheme and 3.67% goes directly into the EPF account. For employees earning above the ₹15,000 ceiling, the EPS contribution is capped at ₹1,250/month (8.33% × ₹15,000).
The EPFO Central Board of Trustees declared an interest rate of 8.25% per annum for FY 2025-26.
New employee registration: Add employees to the EPFO portal within 30 days of their date of joining. Missing this window is one of the most common compliance failures during onboarding.
Monthly deadline: EPF challans must be paid by the 15th of the following month (e.g., August wages → challan due 15 September).
ESIC applies to establishments with 10 or more employees where at least one worker earns ₹21,000 or less per month. Employees with a disability have a higher ceiling of ₹25,000.
Contribution rates:
Rate
Employer contribution — 3.25% of gross wages
Employee contribution — 0.75% of gross wages
ESIC wages include basic pay, DA, HRA, city compensatory allowance, and most regular allowances. Overtime, bonus, gratuity, and reimbursements are excluded.
New employee registration: Register on the ESIC portal within 10 days of joining — a tighter window than EPF.
Monthly deadline: ESIC contributions are due by the 15th of the following month, same as EPF.
The new tax regime is now the default for all employees unless they explicitly opt for the old regime. Employers deduct TDS based on the projected annual salary and the applicable slab.
New regime slabs (FY 2025-26):
Annual Income — Tax Rate
Up to ₹4,00,000 — Nil
₹4,00,001 – ₹8,00,000 — 5%
₹8,00,001 – ₹12,00,000 — 10%
₹12,00,001 – ₹16,00,000 — 15%
₹16,00,001 – ₹20,00,000 — 20%
₹20,00,001 – ₹24,00,000 — 25%
Above ₹24,00,000 — 30%
Key reliefs under the new regime:
This means a salaried employee earning up to approximately ₹12.75 lakh (₹12L + ₹75K standard deduction) pays zero income tax under the new regime.
TDS remittance deadlines:
Form 24Q must be filed quarterly — due dates are 31 July (Q1), 31 October (Q2), 31 January (Q3), and 31 May (Q4).
When an employee submits a declaration choosing the old tax regime, the employer must honour it and apply old regime slabs plus eligible deductions (Section 80C up to ₹1.5L, HRA, LTA, etc.). If no declaration is submitted, apply the new regime. Employees can switch regimes only once per financial year (except for business income earners, who have stricter rules).
Collect declarations in April at the start of the financial year and again in January/February to allow employees to revise their choice before year-end.
1. Missing the EPF registration window. Employers often add employees to payroll before registering them on the EPFO portal. The 30-day window starts on the date of joining, not the date the salary is first processed.
2. Including overtime in ESIC wages. Overtime is excluded from the ESIC wage definition. Including it inflates the contribution base and overstates the employer's liability.
3. Assuming everyone should be on the new tax regime. Employees with significant Section 80C investments, HRA claims, or home loan interest may save more under the old regime. Failure to collect declarations means the employer defaults everyone to new regime — which could cost some employees more tax.
4. Applying the full EPS rate above the ₹15,000 wage ceiling. EPS is capped at a pensionable wage of ₹15,000. Applying 8.33% to the full salary for high earners is incorrect.
5. Late TDS remittance. TDS remitted after the 7th attracts interest at 1.5% per month from the deduction date to the payment date. On a large payroll, this adds up fast.
Profile: Employee, Basic + DA = ₹20,000/month, Gross = ₹35,000/month
Item — Amount
EPF — Employee (12% × ₹20,000) — ₹2,400
EPF — Employer (3.67% × ₹20,000) — ₹734
EPS — Employer (8.33% × ₹15,000 cap) — ₹1,250
ESIC — Not applicable (gross > ₹21,000) — —
TDS — Estimated monthly deduction — Per annual projection
Total cost-to-company additions for statutory compliance: ₹1,984/month in employer contributions above and beyond the salary.
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