PF, ESI, professional tax and TDS: payroll deductions in India explained

Most payslips in India carry up to four deductions: Provident Fund, Employees' State Insurance, professional tax and income tax deducted at source. Each comes from a different law, applies to different people and changes on its own schedule. Here is how they fit together.

Rates, wage ceilings and thresholds change. The figures below are the commonly applied ones at the time of writing; confirm them with EPFO, ESIC, your state's professional tax department and the Income Tax Department before you run payroll, and have your accountant review your setup.

Provident Fund (PF)

Law: Employees' Provident Funds and Miscellaneous Provisions Act, 1952.

Who: establishments with 20 or more employees must register (smaller ones can join voluntarily). Employees earning up to the wage ceiling (₹15,000 a month of basic wages plus dearness allowance) must be covered; above it, coverage is optional.

How much: the employee contributes 12% of basic wages plus DA. The employer also contributes 12%, of which 8.33% goes to the Employees' Pension Scheme (on wages up to the ceiling) and the rest to the provident fund. Employers also pay administrative and EDLI charges.

Each month: deposit contributions and file the electronic challan-cum-return by the due date.

Employees' State Insurance (ESI)

Law: Employees' State Insurance Act, 1948.

Who: generally establishments with 10 or more employees in notified areas, for employees whose gross wages are up to ₹21,000 a month.

How much: the employee contributes 0.75% of gross wages and the employer 3.25%.

Note: an employee's coverage is decided per contribution period, so someone crossing the wage limit mid-period usually stays covered until it ends.

Professional tax (PT)

Law: state laws. Not every state levies it.

Who: employees in states that levy it, on slabs of monthly salary set by that state. The Constitution caps professional tax at ₹2,500 per person per year.

What to watch: slabs, exemptions and the month with a higher deduction (some states collect more in one month so the year adds up) differ by state. If you have staff in several states, each follows its own state's rules.

TDS on salary

Law: Section 192 of the Income-tax Act.

Who: any employee whose estimated taxable salary for the year is above the exemption limit.

How: estimate the employee's annual taxable income under the regime they've chosen (the new regime is the default unless they opt for the old one), work out the tax for the year, and deduct it in equal parts over the remaining months. Investment declarations matter only under the old regime.

What to watch: revise the estimate when salary changes or declarations are updated, and when someone joins mid-year with income from a previous employer.

A monthly checklist

1. Paid days agree with attendance and approved leave.
2. PF wages are worked out on basic plus DA, with the ceiling applied as your policy says.
3. ESI applies only to people within the wage limit for the current contribution period.
4. Professional tax uses the slab of the employee's state.
5. TDS reflects any salary change or new declaration this month.
6. Deposits and returns are filed by their due dates.

How SUTRA helps

SUTRA's payroll takes paid days from attendance and approved leave and locks them when the run is finalised. PF, ESI, professional tax (with rule packs for the states that levy it) and TDS under both regimes are calculated from dated rate tables, so a change is added with the date it takes effect instead of being edited into the software, and earlier months keep their own rates. Employees submit declarations and open their payslips themselves. See payroll in SUTRA.

SUTRA's statutory rules are still awaiting review by a qualified professional; until then, have your accountant check your first runs.