Last updated: July 2026. Reflects the four Labour Codes (effective November 2025) and the Income Tax Act 2025 (effective April 1, 2026). Always verify specific filings with official sources: EPFO, ESIC, and Income Tax Department.
If you manage employees in India, payroll compliance isn’t optional and it isn’t simple. There are monthly deposit deadlines, quarterly filings, annual certificates, and state-specific taxes, all running at the same time. Miss even one, and the penalties start immediately with no grace period, no warning.
2026 has been a particularly significant year. The four Labour Codes came into force in November 2025, replacing 29 older central labour laws. The Income Tax Act 2025 replaced the 1961 Act from April 1, 2026, changing how TDS is calculated, reported, and filed. If your payroll process hasn’t been updated for these changes, it’s worth reviewing everything in this guide.
We’ve put this together as a practical reference not a legal document. For specific advice on your situation, speak to a CA or compliance specialist. For the parts that can be automated, we’ll point you to how Waggex handles payroll compliance so you understand what a software solution actually takes off your plate.
1. Provident Fund (PF)
Governed by: Employees’ Provident Funds and Miscellaneous Provisions Act 1952 updated under the Code on Social Security 2020.
Who it applies to
Any business with 20 or more employees must register for PF. Once registered, the obligation stays even if headcount drops below 20. Smaller businesses can register voluntarily.
How much
- Employee contribution: 12% of basic salary + Dearness Allowance
- Employer contribution: 12% split as 8.33% to EPS (Employees’ Pension Scheme) and 3.67% to EPF
- Important from 2026: Under the new Labour Codes, basic pay must be at least 50% of total CTC. This changes the PF contribution base for many businesses that had structured CTCs to minimise PF liability.
Key deadlines
- 15th of every month: Pay both employer and employee contributions to EPFO and file the ECR (Electronic Challan cum Return)
- 31 July (annual): Annual PF return filing on the EPFO portal reconcile all 12 months of contributions
What happens if you miss
12% per annum interest on late contributions, plus damages under Section 14B: 5% for delays up to 2 months, 10% for 2–4 months, 15% for 4–6 months, and 25% beyond 6 months. These compound. A six-month delay on a ₹2 lakh PF contribution creates a liability of ₹75,000+ before the tax year is out.
2. Employees’ State Insurance (ESI)
Governed by: Employees’ State Insurance Act 1948 updated under the Code on Social Security 2020.
Who it applies to
Businesses with 10 or more employees where any employee earns up to ₹21,000/month (or ₹25,000/month for employees with disabilities). From 2026, the Code on Social Security also extends ESI coverage to gig and platform workers in certain notified categories businesses using contractual or gig labour should verify applicability.
How much
- Employee contribution: 0.75% of gross wages
- Employer contribution: 3.25% of gross wages
- Continuation rule: Once an employee is covered during a contribution period, coverage continues for the full benefit period even if their salary increases above ₹21,000. Many employers get this wrong and stop contributions early.
Key deadlines
- 15th of every month: Pay contributions to ESIC
- 11 October: Half-yearly return for April–September period
- 11 April: Half-yearly return for October–March period
What happens if you miss
12% per annum simple interest on late payments. ESIC also has the authority to recover dues directly from the employer and attach assets in cases of persistent default.
3. TDS on Salary
Governed by: Income Tax Act 2025 (effective April 1, 2026 replaced the Income Tax Act 1961). TDS on salary is now under Section 392 of the new Act (previously Section 192).
How it works
Every employer must estimate each employee’s total annual income at the start of the year, calculate the tax owed based on their chosen regime, and deduct an equal share of that tax from their monthly salary. If the employee’s income or investments change mid-year, the deduction is adjusted in subsequent months.
The two tax regimes in 2026
- New regime (default from FY 2026-27): Lower tax rates, no deductions for HRA, LTA, or 80C. Employees do not need to submit investment proof.
- Old regime (opt-in): Higher rates but allows deductions for HRA, 80C (₹1.5L), LTA, home loan interest, and NPS. Employee must submit Form 12BB with investment declarations.
Key deadlines
- 7th of every month: Deposit TDS via Challan 281 (ITNS 281)
- 30th April only: March TDS (only exception to the 7th-of-month rule)
- Quarterly TDS returns (Form 138): Q1: 31 July | Q2: 31 October | Q3: 31 January | Q4: 31 May
- 15 June annually: Issue Form 130 (replaces Form 16 from FY 2026-27) to all employees
| Important: Form 24Q is now Form 138 From Q1 of Tax Year 2026-27 (April–June 2026), salary TDS returns must be filed on the new Form 138, not the old Form 24Q. Form 24Q still applies for Q4 FY2025-26 (January–March 2026), because the governing law follows the pay period, not the filing date. If your payroll software hasn’t updated for this, check before your next quarterly filing. |
4. Professional Tax (PT)
Professional Tax is a state-level tax not all states charge it, and those that do use different slabs, payment frequencies, and portals. The Constitution caps the maximum at ₹2,500 per year per person. Employers collect it from employee salaries and remit it to the respective state authority.
Here’s a quick reference for the major states. Always verify current slabs on the official state portal rates are updated periodically.
| State | Max Annual PT | Payment Frequency | Note |
|---|---|---|---|
| Maharashtra | ₹2,500/year | Monthly | ₹200/mo for most; ₹300 in Feb for salaried |
| Karnataka | ₹2,400/year | Monthly | Slab-based by salary |
| West Bengal | ₹2,500/year | Monthly | Slab-based; online payment via WBPTIN |
| Tamil Nadu | ₹1,200/year | Half-yearly | ₹600 twice a year |
| Andhra Pradesh | ₹2,400/year | Monthly | Slab-based by salary bracket |
| Delhi | ₹0 | N/A | Delhi does not levy Professional Tax |
| Haryana | ₹200/month | Monthly | Flat ₹200/month for eligible employees |
| Gujarat | ₹2,500/year | Monthly | Slab-based; register with municipality |
Source: State government portals and LegalClarity India payroll compliance overview. Verify current slabs on your respective state PT portal before deducting.
5. The Four Labour Codes What Changed in 2026
The Ministry of Labour & Employment brought all four Labour Codes into operation in November 2025, consolidating 29 older central laws. Here’s what this means for payroll specifically:
- Code on Wages 50% rule: Basic pay (including DA) must be at least 50% of total CTC. Many Indian businesses had structured salaries with a low basic to reduce PF and gratuity liability. This needs to be revisited if you haven’t already.
- Code on Social Security expanded definitions: ‘Employee’ now includes certain gig and platform workers. PF and ESI frameworks are updated. Gratuity eligibility may extend to fixed-term contract workers who complete a year.
- Industrial Relations Code final settlement timeline: Full and final settlement of wages must now happen within 2 working days of an employee’s exit. This has direct operational implications for HR and payroll teams running monthly payroll cycles.
- OHS Code digital records mandatory: Attendance, wages, and statutory registers must be maintained digitally. Physical registers are no longer sufficient for compliance.
| Why this matters if you haven’t acted yet: If your CTC structures still have basic pay below 50% of total CTC, your PF contribution base is incorrect under the new codes. This creates underpayment of PF and potential exposure to back contributions plus interest and penalties. Review all salary structures against this rule. |
Monthly Compliance Deadlines at a Glance
Here’s the consolidated deadline reference for Indian employers.
| Deadline | Obligation | What to Do | Penalty for Missing |
|---|---|---|---|
| 7th every month | TDS deposit | Deposit TDS deducted in previous month via Challan 281 (ITNS 281) | 1.5% per month interest from date of deduction |
| 7th EXCEPTION | March TDS only | March TDS deposit due date is 30th April not 7th April | Same 1.5%/month if missed |
| 15th every month | PF contribution | Pay both employer (12%) and employee (12%) share + file ECR on EPFO portal | 12% p.a. interest + up to 25% damages under Section 14B |
| 15th every month | ESI contribution | Pay employer (3.25%) and employee (0.75%) share to ESIC | 12% p.a. simple interest |
| 31 Jul / 31 Oct / 31 Jan / 31 May | TDS quarterly returns (Form 138) | File quarterly salary TDS returns new Form 138 from Q1 TY2026-27 onwards | ₹200/day under Section 234E |
| 11 April / 11 Oct | ESI half-yearly return | File half-yearly ESIC return for Apr–Sep (Oct) and Oct–Mar (Apr) | Penalty for late filing |
| 15 June (annual) | Form 130 (was Form 16) | Issue annual TDS certificate to all employees under Income Tax Act 2025 | ₹500/day under old Act; new Act penalties apply from Apr 2026 |
Sources: EPFO official portal, ESIC official portal, Income Tax Department, AccounTX payroll compliance checklist 2026. Verify all dates on official portals before filing.
How Waggex Handles Payroll Compliance
Managing all of this manually monthly deposits, quarterly returns, half-yearly ESI filings, annual Form 130 takes significant time and leaves a lot of room for human error. We built Waggex’s payroll compliance module to automate the parts that should never be manual in the first place.
- PF, ESI, and TDS calculate automatically from attendance and salary data that’s already in the system, no manual calculation, no re-entry of attendance data before payroll runs.
- Statutory computations update when rules change. The 50% basic pay rule under Labour Codes, new Form 138 filing requirements, updated TDS slabs under the Income Tax Act 2025 these are reflected in the payroll engine without your HR team having to track every regulatory update.
- Filing-ready outputs. PF ECR files, ESI challans, and TDS data are generated in the correct format for direct upload to government portals.
- Compliance reminders. The Reminder Management feature sends deadline alerts before the 7th and 15th so nothing gets missed in a busy month.
- Attendance connected to payroll. Because GPS and face verification attendance flows directly into payroll, LOP deductions and working-day calculations are accurate from the start removing the most common source of payroll errors.
We’ve written more about why the attendance-to-payroll connection matters in HRMS vs Payroll Software: Which Should You Choose?, and about the full range of compliance features in our guide to Top 10 Payroll Software in India.
The Bottom Line
Indian payroll compliance in 2026 is more complex than it was two years ago. Two major regulatory changes the Labour Codes and the Income Tax Act 2025 have changed how wages are defined, how TDS is filed, and how final settlements are processed. The penalties for getting it wrong haven’t got any smaller.
The practical answer for most Indian businesses isn’t to become compliance experts overnight. It’s to use a payroll system that stays current, automates the routine calculations, and flags the deadlines before they arrive so your HR team can focus on the exceptions rather than the entire monthly cycle.
If you’d like to see how Waggex handles this for your team, start a free trial at waggex.com full access to payroll, compliance, attendance, and all features. No credit card required.