Payroll compliance in India, without the guesswork.

What changed in 2025 and 2026.

Payroll in India rests on the labour codes for wages, PF, ESI, gratuity and bonus, the Income-tax Act for TDS on salary, and each state’s professional tax law. Most of them changed in the last twelve months.

The labour codes brought one definition of wages for PF, ESI and gratuity. The PF wage ceiling rose to ₹25,000. Salary paid from 1 April 2026 falls under the Income-tax Act, 2025, with new form numbers. If your payroll sheet is older than these dates, check it against each section below.

The 50% wage rule.

Under the codes, wages are basic pay, dearness allowance (DA) and retaining allowance. Allowances such as HRA are left out, but only up to half of all pay. Anything over half is added back, and PF, ESI and gratuity are worked out on the result.

An illustration: all pay is ₹50,000 a month, of which basic and DA are ₹20,000. The other payments are ₹30,000, which is ₹5,000 over half, so wages become ₹25,000.

What counts in “all pay” is not fully settled. The Ministry’s first example counted gratuity in the total; its later answer leaves gratuity and ESI out and counts the employer’s PF in. Our salary calculator follows the later answer and shows each step.

Which rules apply to you.

Most payroll duties start at a headcount. An establishment the Code on Social Security applies to must register; one already registered under another central labour law need not register again.

PF: 12% and 12%.

The employee pays 12% of PF wages and the employer matches it: 8.33% to the pension scheme (EPS) and 3.67% to the employee’s EPF account. The employer also pays 0.5% for EDLI insurance and 0.5% in admin charges.

The ceiling rose from ₹15,000 to ₹25,000 on 17 September 2026, so staff earning between the two may now need enrolling. That is the employer’s job. The employer’s share is its own: it cannot be taken from the employee’s wages.

ESI: 0.75% and 3.25%.

ESI is health and cash-benefit insurance run by ESIC. The employee pays 0.75% of wages and the employer 3.25%, for employees earning up to ₹21,000 a month.

Which wages ESI is worked out on is the open question. Before the codes it was gross pay, HRA included. The Ministry says the codes’ wages apply to ESI from 21 November 2025, but ESIC’s pages still describe the ESI Act, 1948, which the Code repealed. Ask your ESIC office, and keep the answer on file.

Professional tax, state by state.

Professional tax is a state tax on employment, trades and professions. Where your state levies it, the employer deducts it from salary and pays it to the state, usually under a state registration.

Each state sets its own slabs, months and forms, and some do not levy it. We don’t list rates here because they change: use your state’s commercial tax department’s figure, or your CA’s. Some states also run a labour welfare fund.

TDS on salary.

Employers deduct income tax from salary when they pay it. In practice that means estimating each employee’s tax for the year, under the regime they chose and the declarations they gave, and spreading it over the months left.

The date of payment decides the Act: salary paid from 1 April 2026 falls under section 392 of the Income-tax Act, 2025. The deposit dates did not change. The quarterly return is now Form 138, which replaced Form 24Q, and the annual salary certificate that was Form 16 has a new number too; check it and its date with your CA.

Gratuity and bonus, in brief.

Gratuity is paid when someone leaves after five years’ service, or sooner on death, disablement or the end of a fixed term. It is 15 days’ wages for each year, on the 50%-rule wages last drawn, so a low basic no longer keeps it low. Our gratuity calculator shows each step.

Two points are not settled: which income-tax entry covers gratuity now that the 1972 Act is repealed (ask your CA), and how service just short of five years counts (ask a labour lawyer).

Statutory bonus is for employees under a wage limit their government notifies. It is paid within eight months of the year end.

Records, registers and payslips.

The Code on Wages asks for a register of employees, attendance and wages, a notice of wage rates and pay day, and a wage slip for each employee. The EPF Scheme asks for similar records and a monthly upload. Keep the working behind each month too, including what you changed for the new ceiling.

• Register of employees, muster roll and wages.
• Wage slips, one for each employee every month.
• PF and ESI challans and returns, employee by employee.
• TDS workings, declarations, proofs and quarterly returns.
• Professional tax returns for each state, and final settlements.

A monthly compliance calendar.

These are the dates the law sets; when one falls on a holiday, don’t assume it moves. Our compliance calendar lists the PF, ESI and TDS dates for 2026-27 with GST, and exports them to your own calendar.

What paying late costs.

Late PF and ESI cost interest and damages, and late TDS costs interest, all growing with each month of delay. The ESI rates come from regulations made under the repealed ESI Act, which the Code keeps for now; check the current rate with ESIC.

Where payroll software helps.

None of this is hard once. It is hard every month, for everyone, when a rule changes halfway through September.

PrimoERP’s payroll works out PF, ESI and TDS on salary each month from each employee’s salary structure, and posts them to the same books as the rest of your business. TDS is projected for the year under each employee’s regime and worked out again when declarations change.

Rates and limits are kept as data in the India pack, so a change like the September 2026 PF ceiling is a pack update. A figure a state has not notified stops the run with a clear message, never a guess.

HR and payroll on the Starter or Growth plan is ₹999 a month with 25 employees included, before GST.

• Attendance and approved leave feed loss-of-pay days.
• Payslips numbered in one series and kept as issued.
• Salaries and what you owe posted to the ledger by cost centre.