Payroll Compliance Checklist for India: PF, ESI, PT, LWF and TDS

This checklist is for owners, HR managers and accountants of Indian businesses with roughly 10 to 500 employees who want to know exactly what payroll compliance requires each month, quarter and year. After reading it you will be able to audit your own payroll against every statutory head, spot the gaps, and decide what your payroll software must produce so that compliance stops depending on one person's memory.

As of 3 October 2026: the four Labour Codes are in force from 21 November 2025, so this is the first bonus season under the Code on Wages, and the 50% wage rule now sets the base for PF, gratuity and bonus. The Income-tax Act 2025 applies from 1 April 2026, which renames the salary TDS forms from tax year 2026-27. The sections below cover all three changes.

Why payroll compliance in India needs a checklist rather than a reminder

Salary compliance in India is spread across central acts (PF, ESI, income tax, bonus, gratuity, contract labour) and state acts (professional tax, labour welfare fund, shops and establishments). Each has its own portal, its own due date and its own penalty logic. Missing one shows up months later as interest, damages and a notice that takes a week to answer.

The four Labour Codes change how wages are defined for several of these heads and the rollout of rules is state by state. Confirm what applies in your state before finalising salary structures, and treat the mechanisms below as the checklist while you verify each threshold on the official portal.

The 50% wage rule: how the Code on Wages changes salary structure

Under the Code on Wages, basic pay, dearness allowance and retaining allowance must make up at least half of total remuneration; if excluded allowances exceed 50%, the excess is added back to wages for PF, gratuity, bonus and similar calculations.

Many Indian salary structures kept basic at 30% to 40% of CTC and paid the rest as HRA and special allowance, which kept PF and gratuity costs low. The Code's wage definition stops that. The worked example below is for a monthly gross of ₹40,000.

Component	Old structure	How the Code reads it
Basic plus DA	₹15,000	Counts as wages
HRA	₹7,500	Excluded, but counts toward the 50% test
Special allowance	₹17,500	Excluded, but counts toward the 50% test
Total exclusions	₹25,000 (62.5%)	Limit is 50% of ₹40,000 = ₹20,000
Excess added back	Nil	₹5,000
Wages for statutory calculations	₹15,000	₹20,000

For this employee, the gratuity base rises by a third. PF impact depends on whether you contribute on actual wages or on the statutory PF wage ceiling, so model both before announcing a new structure. Take-home pay can fall if the employee's PF share rises, which is a conversation to have before payroll runs, not after.

Central rules under the Codes were reported to be notified in May 2026, and states, including Gujarat, issue their own rules for items in their domain. Check the Gujarat notification on the state labour department site before finalising structures. Our guide to the 50% wage rule and salary restructuring works through more examples.

Statutory deductions checklist: PF, ESI, professional tax and LWF

PF compliance: how the ECR mechanism works

Provident Fund applies to establishments with 20 or more employees, and to smaller ones that register voluntarily. Both employee and employer contribute 12% of PF wages (basic plus dearness allowance), with part of the employer share going to the pension scheme. Employees above the statutory wage ceiling may be excluded or covered on a restricted basis; check the current ceiling on the EPFO portal, because it is the number most often quoted wrongly.

The monthly filing is the Electronic Challan cum Return, or ECR. Your payroll software must produce a text file in the ECR format with each member's UAN, gross wages, EPF wages, EPS wages, EDLI wages, contributions and NCP (non-contributing) days. You upload it on the EPFO unified employer portal, the system generates a challan, and you pay through net banking. Due date is the 15th of the following month.

PF checklist

• UAN generated and Aadhaar-seeded for every new joiner before the first ECR that includes them.
• Date of joining and date of exit updated on the portal within the same month.
• NCP days match your attendance and leave-without-pay records.
• ECR uploaded, challan paid and TRRN kept in the file by the 15th.
• Employee KYC (bank, PAN) approved so withdrawals and transfers do not bounce back to HR.

ESI compliance: the wage ceiling concept

Employees' State Insurance covers employees whose monthly gross wages are at or below a ceiling fixed by the ESI Corporation, in establishments with 10 or more employees in notified areas. The current ceiling and the contribution percentages (a small employee share and a larger employer share) are published on the ESIC portal; check them there rather than copying an old figure into your salary sheet.

Two mechanics catch people out. First, once an employee is covered at the start of a contribution period (April to September or October to March), they remain covered until that period ends even if a raise takes them above the ceiling. Second, ESI wages include most allowances and overtime, so the base for ESI is usually higher than the base for PF.

ESI checklist

• IP number generated for each eligible employee with correct dispensary mapping.
• Monthly contribution filed and paid on the ESIC portal by the 15th of the following month.
• Half-yearly return of contributions reviewed at the end of each contribution period.
• Accident register maintained and Form 12 filed where an accident occurs at work.
• Contract workers covered either by the contractor's code or under your own, never left out.

Professional tax by state

Professional tax is a state levy on salaried income, capped by the Constitution at ₹2,500 per person per year. Each state sets its own slabs, due dates and return format, and a few states do not levy it at all. Gujarat collects it through municipal corporations and panchayats with a monthly slab that exempts lower salaries; Maharashtra, Karnataka, West Bengal, Tamil Nadu, Andhra Pradesh and Telangana each run their own schedules.

The practical consequence: if you have a branch in Ahmedabad and a sales office in Mumbai, you need two registrations, two slab tables and two due dates in your payroll software. Employer enrolment (a fixed annual amount for the business itself) is separate from employee deduction and is often forgotten in the first year.

Item	What to check	Where
Employee registration (PTRC or equivalent)	Registered in every state where you have employees on payroll	State commercial tax or municipal portal
Employer enrolment (PTEC or equivalent)	Annual fixed payment for the business	Same portal
Slab table	Current slabs loaded per state; Gujarat slab reviewed against the latest notification	State notification
Return frequency	Monthly, quarterly or annual depending on state and total deduction	State rules

Labour Welfare Fund contributions

Many states, including Gujarat, Maharashtra, Karnataka, Tamil Nadu and Delhi, operate a Labour Welfare Fund with small contributions from employee and employer, typically collected half-yearly. Gujarat's fund is administered by the Gujarat Labour Welfare Board, with contributions for the periods ending June and December. The amounts are small but the filing is easy to miss. Put the two half-yearly dates in the calendar and confirm the current amounts on the state board's site.

TDS on salary: declarations, Form 24Q and Form 16

Under Section 192, the employer estimates each employee's annual income, applies the regime the employee has chosen (old or new), and deducts tax proportionally every month. The deducted amount is deposited by the 7th of the following month (with a later date for March), and reported quarterly in Form 24Q. After the last quarter, Form 16 is generated from the TRACES portal and issued to every employee by 15 June.

The annual TDS cycle

1. April: collect regime choice and investment declarations from every employee; compute projected tax.
2. Monthly: deduct TDS, deposit by the 7th, reconcile challans against the payroll register.
3. Quarterly: file Form 24Q by 31 July, 31 October, 31 January and 31 May.
4. January to February: collect proofs (rent receipts, insurance, home loan certificates, HRA), recompute and adjust March deduction.
5. May to June: download Part A from TRACES, generate Part B from payroll, issue Form 16 by 15 June.

Your payroll software should hold the declaration, the proof status and the regime per employee, and should produce the Form 24Q return file and Part B of Form 16 without re-entry. If your accountant is building Form 16 in a spreadsheet every June, that is the first thing to fix.

From tax year 2026-27 the same cycle runs under the Income-tax Act 2025 with new form numbers: section 392, Form 138 for the quarterly return and Form 130 for the annual certificate. The mapping table in the next section shows each change.

Income-tax Act 2025: Form 130, Form 138 and Form 124 replace Form 16, 24Q and 12BB

From tax year 2026-27, salary TDS runs under the Income-tax Act 2025, so Form 16 becomes Form 130, the quarterly Form 24Q becomes Form 138, and the employee declaration Form 12BB becomes Form 124, with salary TDS under section 392.

Purpose	Income-tax Act 1961 / Rules 1962	Income-tax Act 2025 / Rules 2026
TDS on salary (section)	Section 192	Section 392
Annual salary TDS certificate	Form 16	Form 130
Quarterly salary TDS statement	Form 24Q	Form 138
Employee claim of deductions and HRA	Form 12BB	Form 124
Statement of perquisites	Form 12BA	Form 125
Quarterly TDS statement for non-salary payments	Form 26Q	Form 140

The old forms do not vanish overnight. Form 16 for the financial year 2025-26, issued by June 2026, was still under the 1961 Act, and notices for earlier years keep the old names. The first Form 130 will be issued for tax year 2026-27. Payroll software should carry both sets of form names and section references through the transition. Form numbers above follow the Income Tax Department's published form FAQs; check incometaxindia.gov.in for the current versions. We cover the switch in detail in our guide to the new payroll TDS forms under the Income-tax Act 2025.

Bonus, gratuity and contract labour records

Bonus and gratuity registers

Since 21 November 2025, statutory bonus is governed by the Code on Wages, which replaced the Payment of Bonus Act 1965. The mechanism is familiar: a minimum bonus of 8.33% and a maximum of 20% of the wages used for bonus, for eligible employees who worked at least 30 days in the year, with a wage ceiling for eligibility and a separate ceiling for calculation. Check the currently notified ceilings rather than copying last year's sheet, and remember that the 50% wage rule can change the wage figure the percentage is applied to. Bonus must be paid within eight months of the close of the accounting year, so for a March year-end the bonus for 2025-26 is due by 30 November 2026. Keep the allocable surplus, set-on and set-off, and bonus-paid records, and file the annual return in the format your state's rules under the Code prescribe. Our Diwali bonus calculation guide has a worked example.

Gratuity now sits in the Code on Social Security, which also extends it to fixed-term employees on a pro rata basis after one year of service. For permanent employees the familiar rules continue: it applies to establishments with 10 or more employees. Gratuity is payable on leaving after five years of continuous service, at 15 days' wages for every completed year, calculated on last drawn basic plus DA. Maintain a nomination (Form F) for every employee, and check the current tax-free ceiling on the income tax portal before processing a settlement. Many businesses also fund gratuity through an approved fund so the liability does not land in one lump.

Contract labour records

If contractors supply workers to your premises, the Contract Labour (Regulation and Abolition) Act may require you, as principal employer, to register once the number of contract workers crosses the threshold applicable in your state, and each contractor to hold a licence. Threshold numbers differ by state, so verify yours.

The principal employer remains responsible if the contractor fails to pay wages, PF or ESI. That means your records must be good enough to prove compliance on the contractor's behalf. Keep, for each contractor, the licence copy, the register of contractors, monthly muster rolls and wage registers, and evidence of PF and ESI payment (ECR and challan copies). Attendance software that tags every worker with a contractor code makes this a monthly report rather than a scramble.

Payroll compliance calendar: monthly, quarterly and annual

Frequency	Filing or action	Due date (verify on portal)
Monthly	TDS on salary deposit (Section 392, formerly 192)	7th of following month; March by 30 April
Monthly	PF ECR upload and payment	15th of following month
Monthly	ESI contribution	15th of following month
Monthly	Professional tax payment (state)	Gujarat: 15th; other states vary
Monthly	Contractor wage and PF/ESI proof review	Before releasing contractor payment
Quarterly	Salary TDS return: Form 138 (formerly 24Q)	31 July, 31 October, 31 January, 31 May
Half-yearly	ESI return of contributions	After September and March periods
Half-yearly	Labour Welfare Fund (Gujarat and similar states)	Periods ending June and December
Annual	Salary TDS certificate: Form 130 (formerly Form 16)	15 June
Annual	Statutory bonus payment under the Code on Wages, then annual return	Within 8 months of year close: 30 November for a March year-end
Annual	Professional tax employer enrolment fee	Per state schedule
Annual	Shops and Establishments or Factories Act annual return	Per state schedule

What payroll software must produce for statutory compliance

A payroll system that is compliant in practice, not just on a feature list, will produce all of the following as standard outputs without anyone rebuilding them in a spreadsheet:

• PF ECR text file with UAN, wage heads and NCP days, plus a reconciliation against the salary register.
• ESI monthly contribution file and half-yearly summary, with contribution-period locking.
• State-wise professional tax deduction register and payment summary.
• Labour Welfare Fund half-yearly statement per state.
• TDS computation per employee with regime, declaration and proof status; quarterly salary TDS file (Form 138, formerly 24Q); annual certificate (Form 130, formerly Form 16).
• Bonus registers under the Code on Wages rules and gratuity provision report, using wages after the 50% add-back.
• Contractor-wise attendance, wage and statutory summary.
• Payslips that show every deduction head separately, and an audit log of who changed what.

Our HRMS and payroll software is built around this output list, because the outputs are what an inspector or auditor actually asks for.

What we have seen on payroll projects in Gujarat

JK Tech Hub has implemented payroll for manufacturers, hospitals, schools and service firms across Rajkot, Ahmedabad and Surat, and the same three gaps appear in almost every audit we do before a project starts.

A forging unit near Shapar-Veraval with around 180 workers had PF and ESI running correctly for its own staff, but four contractors supplying 60 workers between them were submitting a single-line invoice with no attendance backing. When one contractor stopped depositing PF, the unit found out from an EPFO notice. Contractor-coded attendance and a monthly proof check before payment release closed the gap.

A multi-branch hospital in Rajkot was deducting professional tax at the Gujarat slab for nurses posted to a Maharashtra branch. The correction took an afternoon, but the missing Maharashtra registration took two months to sort out.

A textile trading firm in Surat with 40 staff was building Form 16 by hand every June from three spreadsheets. Moving declarations, proofs and regime choice into payroll made Form 16 a one-click export and, more usefully, made the monthly TDS deduction accurate from April rather than a March surprise.

How to decide what to fix first

Start with the monthly heads, because those carry interest and damages that compound: PF, ESI and TDS. Then check the state heads, professional tax and LWF, for every state where you have a payslip. Then look at the annual registers for bonus and gratuity, which are usually the weakest. Finally, if you use contract labour, insist on attendance-backed contractor invoices before the next payment. If more than two of those need a spreadsheet today, it is time for payroll software that produces them by design.

Related reading and next step

• HRMS and payroll software: statutory outputs, payslips and employee self-service in one system.
• Attendance management system: biometric and contractor-wise attendance that feeds payroll directly.
• Accounting and GST billing software: so salary journals and TDS challans land in the books automatically.
• Hospital management system: for multi-branch healthcare employers with shift staff.
• 50% wage rule: restructuring salary under the Labour Codes.
• Diwali bonus calculation: statutory bonus under the Code on Wages.
• New payroll TDS forms: what the Income-tax Act 2025 changes for employers.
• Software company in Rajkot: about the team and how projects run.

To get a fixed quote for payroll software that produces every filing on this checklist, share your headcount and states through the contact page or on WhatsApp and we will respond within one working day.