Indian HR & Payroll Compliance Guides | EZHRM
Comprehensive, authoritative guides to Indian labour law and payroll compliance — PF, ESI, PT, TDS, Gratuity, Minimum Wages, and more — updated for 2026.
Why Indian HR Compliance Matters More Than Ever
India’s labour law framework is one of the world’s most complex, with over 40 central labour laws and 100+ state-level regulations governing employment. The government’s ongoing labour reform initiative — consolidating these into 4 Labour Codes — is introducing new compliance requirements even as older laws remain in force in most states. In FY2024-25, the EPFO alone collected over ₹2.5 lakh crore in contributions and levied penalties on thousands of non-compliant establishments.
For Indian businesses, HR and payroll compliance is not optional — it’s a legal obligation backed by criminal penalties, prosecution, and financial sanctions. This compliance guide hub covers the key statutory requirements every Indian employer must understand and manage.
Compliance Guide Topics
Employees’ Provident Fund (EPF/PF)
PF is mandatory for establishments with 20+ employees. Employer contributes 12% of basic wages to EPF + EPS + EDLI. Employee contributes 12%. Monthly challan due by the 15th of the following month. Non-compliance attracts 5–25% penalty plus 12% p.a. interest.
Employee State Insurance (ESI)
ESI covers employees earning up to ₹21,000/month (₹25,000 for persons with disability). Employee contributes 0.75% of gross salary; employer contributes 3.25%. Applicable to establishments with 10+ employees in most states. Returns due half-yearly.
Professional Tax (PT)
Professional Tax is levied by 21 states in India on salaried employees. Rates vary by state — up to ₹2,500/year in Maharashtra and Karnataka. Employers deduct PT from employee salary and deposit with the state government. Non-deduction attracts penalties.
TDS on Salaries & Form 16
Employers must deduct TDS under Section 192 of the Income Tax Act on employee salaries where annual income exceeds the basic exemption limit. TDS must be deposited by the 7th of the following month. Form 16 must be issued by June 15 each year for the previous financial year.
Gratuity Act, 1972
Gratuity is payable to employees who have completed 5 years of continuous service, upon resignation, retirement, or death. Formula: (Basic + DA) × 15/26 × Number of Years of Service. Maximum gratuity payable is ₹20 lakh (revised from ₹10 lakh in 2018).
Minimum Wages Act, 1948
Minimum wages are set by the Central and State governments for each scheduled employment category. As of 2026, the Central Government’s national floor wage is ₹178/day. State minimum wages range from ₹350 to ₹700+ per day for unskilled workers. Employers must ensure no employee is paid below the applicable minimum wage.
Shops & Establishments Act
The Shops and Establishments Act regulates working hours, leave entitlements, employment of women and young persons, and establishment registration for commercial establishments. It is a state legislation — each state has its own version with different requirements. Registration is mandatory for all commercial establishments.
Labour Welfare Fund (LWF)
Labour Welfare Fund contributions are mandatory in 15+ states. Contribution amounts and frequencies vary significantly — from ₹6/year per employee in some states to ₹120+/year in others. LWF is deducted from employee salary and matched by the employer, then deposited with the state welfare board.
How EZHRM Automates Indian Compliance
Managing these 8+ compliance requirements manually — each with different thresholds, rates, due dates, and filing requirements — is one of the biggest administrative burdens for Indian HR teams. EZHRM automates the full compliance lifecycle:
- Automatic threshold monitoring: EZHRM alerts you when your headcount approaches PF/ESI applicability thresholds
- Statutory deduction automation: PF, ESI, PT, TDS, and LWF are calculated automatically every payroll cycle
- Auto-generated challans: PF challan (ECR), ESI challan, and PT challans are generated ready for payment
- Compliance calendar: Never miss a due date with EZHRM’s built-in compliance calendar with automated reminders
- Audit-ready reports: All statutory reports are generated in government-prescribed formats, ready for inspector visits
- Annual returns: PF annual return, ESI half-yearly returns, and PT annual returns generated with one click
Frequently Asked Questions
What is the PF contribution rate in India in 2026?
In 2026, the PF (Provident Fund) contribution rate in India is 12% of basic wages from the employee and 12% from the employer. Of the employer’s 12%: 8.33% goes to EPS (Employee Pension Scheme, capped at ₹15,000 basic), 3.67% goes to EPF, and employers also contribute 0.5% to EDLI (Employee Deposit Linked Insurance) and 0.5% administrative charges. Total employer cost is approximately 13% of basic wages.
Who is covered under ESI in India?
ESI (Employee State Insurance) covers employees earning up to ₹21,000 per month gross salary (₹25,000 for persons with disability) in establishments with 10 or more employees (in most states). The employee contribution is 0.75% of gross wages and the employer contribution is 3.25% of gross wages. ESI provides medical, maternity, disability, and dependent benefits to covered employees.
What are the penalties for PF non-compliance in India?
Penalties for PF non-compliance under the EPF Act, 1952 include: damages (penalty) of 5% p.a. for delays up to 2 months, 10% for delays of 2–4 months, 15% for 4–6 months, and 25% for delays exceeding 6 months. Interest at 12% per annum applies on outstanding contributions. Willful non-compliance can result in imprisonment of up to 1 year and/or fine under Section 14 of the EPF Act.
In which states is Professional Tax applicable in India?
Professional Tax (PT) is applicable in 21 Indian states including Maharashtra (max ₹2,500/year), Karnataka (max ₹2,400/year), West Bengal (max ₹2,500/year), Andhra Pradesh, Telangana, Tamil Nadu, Gujarat, Madhya Pradesh, Odisha, Assam, Kerala, Meghalaya, Tripura, Sikkim, Bihar, Jharkhand, and Chhattisgarh. Delhi, Haryana, Uttar Pradesh, and Rajasthan do not levy Professional Tax.
How is gratuity calculated in India?
Gratuity is calculated using the formula: Gratuity = (Last drawn Basic + DA) × 15/26 × Number of completed years of service. The maximum gratuity payable is ₹20 lakh (as amended in 2018). Gratuity is payable after 5 years of continuous service on resignation, retirement, death, or disablement. For employees in seasonal establishments, the formula uses 7/26 instead of 15/26.
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PF, ESI, PT, TDS, Gratuity — all automated in one platform. Never miss a deadline or risk a penalty.