What is Payroll, PF & ESI Services?
Payroll processing is the monthly cycle of computing salaries and deductions, paying employees, depositing the statutory dues withheld, and filing the returns that report them. In India it brings together income tax withholding on salary, provident fund, employees' state insurance, state professional tax and the records employment law requires.
Who needs it
- Employers with provident fund or ESI registration, which brings monthly returns and deposits.
- Businesses crossing the headcount at which provident fund or ESI registration becomes required.
- Companies with employees across states, where professional tax and labour registrations differ by state.
- Employers who need salary tax withheld correctly across the two tax regimes employees can choose between.
- Businesses whose payroll is still run on spreadsheets, where a single error repeats every month.
- Employers with contractors and consultants alongside employees, where the withholding treatment differs.
- Companies that need Form 16 and full and final settlements issued on time and correctly computed.
Benefits
- Salaries processed to a fixed monthly calendar, with payslips and a register management can check.
- Tax on salary computed on each employee's chosen regime and declarations, and revised through the year.
- Provident fund and ESI deposits and returns filed by their due dates each month.
- Professional tax handled state by state, including states where none applies.
- Form 16 issued from the filed returns within the time allowed.
- Full and final settlements computed with notice, leave encashment, gratuity where due, and the final tax position.
- A single record for audit, assessment and any inspection by the authorities.
Key facts
| Item | Position |
|---|---|
| Provident fund | Deposit and electronic challan-cum-return by the 15th of the following month |
| ESI | Contribution by the 15th of the following month |
| Salary TDS deposit | By the 7th of the following month; for March, by 30 April |
| Salary TDS return | Form 24Q, quarterly: 31 July, 31 October, 31 January, 31 May |
| Form 16 | By 15 June following the financial year, generated from the filed returns |
| Professional tax | A state levy: Maharashtra and Punjab levy it, Uttar Pradesh does not |
| Gratuity | On completion of the qualifying period of continuous service, as the Payment of Gratuity Act provides |
| Labour codes | In force from November 2025, with central rules notified in 2026 and state rules varying |
What does the monthly payroll cycle look like?
Payroll is a calendar before it is a calculation. The statutory dates are fixed, so the internal cut-offs have to be set backwards from them.
- Cut-off: attendance, leave, joiners, leavers and salary changes are frozen for the month
- Processing: gross pay, statutory deductions and tax on salary computed for each employee
- Review: the employer checks the register and the variance against the previous month before any payment
- Payment: the bank file is generated from the approved register and payslips are released
- Deposits: tax deducted by the 7th; provident fund and ESI by the 15th; professional tax as the state requires
- Returns: provident fund and ESI returns monthly, Form 24Q quarterly
- Year end: declarations verified against proofs, final tax adjusted, and Form 16 issued by 15 June
Which statutory deductions apply?
Four may apply, and only two of them are national: provident fund and ESI depend on the establishment being covered and the employee being within the wage conditions, tax on salary applies to anyone whose estimated annual income is taxable, and professional tax applies only in states that levy it.
| Deduction | Who it applies to | When it is paid |
|---|---|---|
| Provident fund | Establishments covered by the Employees' Provident Funds Act, for members within the wage conditions | By the 15th of the following month, with the ECR |
| ESI | Establishments covered by the ESI Act, for employees within the wage ceiling | By the 15th of the following month |
| Tax deducted on salary | Every employee whose estimated annual income is taxable | By the 7th of the following month |
| Professional tax | Only in states that levy it, at that state's rates | As the state law prescribes |
| Labour welfare fund | Only in states that levy it, where the establishment is covered | At the frequency the state prescribes |
The wage ceilings, contribution rates and coverage thresholds for provident fund and ESI are set by their own statutes and have been revised from time to time, and the statutory definition of wages has itself changed under the labour codes. The current figures should be confirmed for the period being processed rather than carried forward from an earlier year.
How does professional tax differ by state?
This catches employers with people in more than one state, because the answer is genuinely different in each. There is no national professional tax and no national rate.
| State | Position |
|---|---|
| Uttar Pradesh | No professional tax on salaried employees or professionals; no registration or filing |
| Maharashtra | Levied on a slab basis, with monthly deduction and an annual ceiling, with separate slabs that have applied to men and women |
| Punjab | Levied as the Punjab State Development Tax: a flat monthly amount on persons liable to income tax whose income exceeds the threshold in the state Act |
| Other states | Varies: some levy it, some do not; rates, slabs and return frequency are set by each state |
For a firm with offices in Noida, Delhi, Ludhiana and Meerut, that means professional tax arises in Ludhiana and not in Noida, Delhi or Meerut. The practical risk runs both ways: missing a registration in a state that levies it, and registering and filing in a state that does not.
Why salary structure affects more than take-home pay
How a salary is split between its components decides the cost of employing someone, not just what reaches their account. Provident fund and gratuity are computed on defined wage elements, so moving pay between basic salary and allowances changes the employer's statutory cost. The labour codes introduced a statutory definition of wages that limits how far the excluded components can be used, with the effect that structures built to minimise provident fund and gratuity may no longer achieve it.
The practical consequence is that a structure designed some years ago should be reviewed against the current definition rather than assumed to still work, and that the review is better done deliberately than discovered during an inspection or at a settlement when gratuity is computed.
Example: a leaver's full and final settlement
The figures below are illustrative. An employee on a monthly gross of ₹80,000 resigns on 12 November having served part of the notice period, with 9 days of unused leave and 6 years of continuous service. The settlement computes salary for the days worked in November, encashment of the 9 days under the company's policy, recovery for the portion of notice not served, and gratuity, which is payable because the qualifying period of continuous service has been completed and is computed on the formula and the wage elements the Payment of Gratuity Act prescribes. Reimbursement claims outstanding are added and any advance is recovered. The tax for the year is then recomputed, because the monthly deductions assumed twelve months of salary and only part of the year was worked, which commonly produces a refund position that the employee claims in their return rather than from the employer.
A note on the Income-tax Act, 2025
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026. It uses the term "tax year" in place of previous year and assessment year, and it renumbers sections and forms. This page uses the 1961 section numbers because that is how the provisions are still commonly known; the corresponding provisions of the Income-tax Act, 2025 apply to periods governed by the new Act. Confirm the current numbering for your period before relying on a reference.
Related reading
- TDS return filing — Form 24Q and the certificates generated from it
- Bookkeeping services — payroll postings in the monthly books
- Tax and compliance calendar — the monthly and quarterly statutory dates
- Compliance calendar: monthly due dates for businesses — where the PF and ESI dates sit alongside the rest
Official sources
- Employees' Provident Fund Organisation — ECR filing, contribution rates and due dates
- Employees' State Insurance Corporation — contribution rates, wage ceiling and due dates
- Ministry of Labour and Employment — the four labour codes and the central rules
- Income Tax Department – e-filing portal — Form 24Q and Form 16
Documents required
- 01Employee master data: name, date of joining, designation, permanent account number and Aadhaar
- 02Salary structure for each employee, with the breakdown of the components
- 03Attendance and leave records for the month, and any overtime
- 04Bank details for salary payment, and the universal account number for provident fund members
- 05Tax regime choice and investment and exemption declarations from each employee, with proofs
- 06Provident fund and ESI registration details and portal credentials
- 07Professional tax registration details for each state where it applies
- 08Previous employer salary and tax details for employees who joined during the year
- 09Resignation, notice and settlement details for leavers
Due dates and penalties
| Item | Due date | If missed |
|---|---|---|
| Provident fund deposit and electronic challan-cum-return | By the 15th of the following month | Interest on the delayed amount and damages at the rates prescribed |
| ESI contribution | By the 15th of the following month | Interest on the delayed amount and damages at the rates prescribed |
| Tax deducted on salary | By the 7th of the following month; for March, by 30 April | Interest under Section 201(1A) for the period of delay |
| Quarterly return in Form 24Q | 31 July, 31 October, 31 January and 31 May | Late fee of ₹200 per day under Section 234E, limited to the tax deducted |
| Form 16 to employees | By 15 June following the end of the financial year | Penalty for failure to furnish the certificate |
| Professional tax | As each state's law prescribes, where the state levies it | Interest and penalty under the state legislation |
Provident fund and ESI dates are monthly and do not move with the payroll date, so a late salary run does not postpone them. Professional tax is a state levy and its dates, rates and even its existence differ by state. The four labour codes were brought into force in November 2025 with central rules notified during 2026, and state rules were still being notified in parts, so the position for a particular establishment should be confirmed for its state.
Mistakes to avoid
- Depositing provident fund or ESI late because the salary run slipped, when the statutory date does not move with it.
- Deducting tax on salary without collecting each employee's regime choice and declarations, and then having to correct it in March.
- Not accounting for an employee's previous employer salary, which understates tax for most of the year.
- Registering for professional tax in a state that does not levy it, or missing it in a state that does.
- Treating a consultant as outside payroll without testing whether the engagement is in substance employment.
- Issuing Form 16 prepared by hand rather than generated from the filed quarterly return.
- Settling a leaver's dues without computing gratuity where the qualifying service is met, or without the final tax position.
- Keeping salary structures unchanged for years while the statutory wage definitions around them change.
Why PHMG
- Partner-led: a chartered accountant reviews your work, not only a junior team.
- Clear fee and scope in writing before we start.
- Deadlines tracked for you, with reminders well before the due date.
- Your documents and data are handled confidentially.
- Online service across India, with a single point of contact.
Fees depend on your case. Request a quote for a clear scope and fee.