Payroll Compliance | Legal Workmate
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Payroll Outsourcing

Payroll Outsourcing Service specially designed for new entrepreneurs.

Services Covered :

  • Employee compensation designing
  • TDS Compliance
  • ESIC Compliance
  • PF Compliance.

Payroll Compliance in India

Payroll compliance in India consists of the calculations of Income Tax Compliance (TDS), Reimbursements, Provident Fund Compliance, Professional Compliance, ESI Compliance, Gratuity Compliance and various other laws.

Let’s check which compliance applies to your business.

TDS on the salary is deducted u/s 192 of the Income Tax Act, 1961 and it states that “All persons paying salary are responsible to deduct TDS on income chargeable under the head “Salary””.

  • Applicability of Section 192.

    • TDS u/s 192 is to be deducted by every person paying salary whether to resident or non- resident employee. In other words none of the payer of Salary is excluded; Individual, HUF, Partnership firms, companies, cooperative societies, Trust and other artificial judicial persons have to deduct TDS on Salary.
    • However no tax is required to be deducted if the estimated income under salary of employee is less than basic exemption limits.
  • Rate of Tax for TDS.

    • Rate of TDS is based on the slab rate of the Individual. i.e Amount of TDS is equal to Tax on income under the head salary reduced by the deductions claimed under chapter VI A and losses under the head house property.
  • Tax rate structure for Individual:

    Income Tax Slab Individuals Below Age of 60 Years
    Up to 2,50,000. Nil.
    2,50,001 to 5,00,000 5 %
    5,00,001 to 10,00,000 12,500 + 20% of total income exceeding 5,00,000
    Above 10,00,000 1,12,500 + 30% of total income exceeding 10,00,000
  • Compliance to be done under TDS u/s 192.

    • Filling of TDS return: Form 24Q : TDS returns has to be filled every quarterly till last date of month following the quarter.
    Sr. No Quarter Ended Due Date
    1 30th June 31st July
    2 30th September 31st October
    3 31st December 31st Jan
    4 31st March 31st May
  • TDS Payment due date:

    • TDS is to be paid by 7th of every month however in case of month of March, TDS is payable till 30th of April.
  • Issuance of Form 16

    • Every employer is liable to issue Form 16 part A and B to each and every employee who’s TDS has been deducted.
  • Applicability of Employees’ Provident Funds & Miscellaneous Provisions Act, 1952

    • Any business or establishment within these industries (Industry List) or any activity notified by Central Government in the Official Gazette.
    • Employs 20 or more employees (including contract workers).
    • Applicable to cinema theaters with over 5 employees.
    • Once registered, a business will continue be applicable and liable under the Act even if the employee count falls below 20 persons.
    • Business that do not meet the criteria above can choose to voluntarily register with the EPFO under Section 1(4) if the employer and employees are both willing.
  • Applicability of an employee:

    • An employee is applicable to the EPF Act if his/her wages (Basic + DA) are under INR 15,000. However, in the future, the wages might include HRA along with basic pay and DA, and the government might raise the limit.
    • However it is advisable to opt for PF even is the salary exceeds INR 15,000/- as it a good Investment option and deduction for the same is available u/s 80 C.
  • Rate of EPF

    • The Employees contribution is matched by the Employer till 12%. PF and EPS (Employees’ Pension scheme) are calculated on basic salary, dearness allowance (DA), cash value of food concession and retaining allowances if any. Most companies base it of (Basic + DA).
    • However based on the recent Supreme Court Judgment the salary shall include Basic + Monthly allowance also.
    • However in case if the salary is more than 15,000 P.M then contribution is restricted up to INR 1800 Per Month based on the employee discretion.
    Contribution Employee Employer
    Provident Fund 12% 3.67%
    Employee Pension Scheme 0% 8.33%
    Exemptions (I) Not tax exempt
    Eligible for deduction under 80C
    Tax exempt
  • Compliance to be done:

    • Payment of PF amount is to be made on 15th of next month and return for the same is to be filled till 25th of the next month.
    • Form 2 : At the time of joining employee should fill form 2. It contains his personal details and nomination.
    • Form 5 : Form 5 is a monthly report which contains details pertaining to the employees who have been newly enrolled into the provident fund scheme.
    • Form 10 : is a monthly report that provides the details of the employees exiting from the Provident Fund scheme during the given month.
    • Form 12A : along with Triplicate copy challan, PF Form 12A monthly report that provides the details of the PF Payments made to the respective PF Accounts of the Employees during the given month.
  • Annual Returns:

    • Form 3A : Known as a member’s annual contribution card, Form 3A depicts the month-wise contributions made by the subscriber/member and employer towards E.P.F and Pension Fund in a particular year.
    • Form 6A : is a consolidated annual contribution statement that contains details about the annual contributions of each member of the establishment.
  • Applicability of Professional Tax:

    • Professional tax is applicable in the following states and union territories: Andhra Pradesh, Assam, Chhattisgarh, Gujarat, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Meghalaya, Odisha, Sikkim, Tamil Nadu, Telangana, Tripura, Punjab, Bihar, GOA, Jharkhand, Manipur, Pondicherry and West Bengal.
    • Professional tax is payable by each employer based on the monthly salary; in most of the states, the same is maximum INR 200 per month.
    • Further professional tax is also payable for individuals, including self-employed, providing specified services.
  • Applicability of ESIC Act:

    • The ESI scheme applies to all factories and other establishments, as defined in the ESIC Act. Ten or more people employed in such an establishment with beneficiaries’ monthly wage that does not exceed Rs 21,000 fall under this scheme. Whether the employer has hired ten or more employees, all employees agnostic of the salary are reckoned.
    • Other establishment includes shops, hotels, restaurants, cinemas, including preview theatres, road-motor transport undertakings, newspaper establishments, establishments engaged in Insurance Business, Non-Banking Financial Companies, Port Trust, Airport Authorities, Warehousing Private, Medical and Educational institutions employing ten or more persons.
    • The threshold for coverage of establishment is 20 employees in Maharashtra and Chandigarh.
  • Rate of ESIC:

    • Currently contribution rate for ESIC for employer is 4% and that for employee is 1 % of the wages.
  • ESIC Compliance:

    • PaymentThe total amount of contribution i.e. employee’s share and employer’s share is to be deposited with the authorized bank through a challan in the prescribed form in on or before 15th of the month following the calendar month in which the wages fall due.
  • Annual Return:

    • Annual ESI filingsThe ESI returns are filed half-yearly, and can be done through their online portal..

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