Statutory Deductions in India: A Payroll Guide

Statutory deductions in India are the mandatory contributions and taxes an employer must deduct from an employee's salary and remit to government bodies. The five main deductions are Employee Provident Fund (EPF), Employee State Insurance (ESI), professional tax (PT), labour welfare fund (LWF) and income tax (TDS). This guide explains how each is calculated, when it applies and where the money goes.

How much PF is deducted from salary?

Provident Fund is governed by the Employees' Provident Funds & Miscellaneous Provisions Act, 1952. The standard contribution rate is 12% from the employee and 12% from the employer. Both are calculated on "EPF wages".

| Component | Rate | Basis | |---|---|---| | Employee PF | 12% | EPF wages | | Employer PF total | 12% | EPF wages | | Employer EPS share | 8.33% | EPS wages, capped at ₹15,000 | | Employer EPF share | Balance | EPF wages |

EPF wages are the employee's basic salary plus dearness allowance, capped at ₹15,000 per month. Employers can choose to contribute on actual basic above ₹15,000, but this is optional. The EPS pension contribution is capped at ₹1,250 per month because EPS wages are capped at ₹15,000.

What is the ESI eligibility limit and contribution rate?

Employee State Insurance is governed by the ESI Act, 1948. It provides medical, cash, maternity and disability benefits.

| Part | Rate | Condition | |---|---|---| | Employee ESI | 0.75% | Gross salary ≤ ₹21,000 per month | | Employer ESI | 3.25% | Gross salary ≤ ₹21,000 per month | | Exempt | 0% | Gross salary > ₹21,000 and not locked into a contribution period |

ESI works in contribution periods: April to September and October to March. Once an employee contributes in a period, they usually continue contributing for the rest of that period even if their gross rises above ₹21,000.

How is professional tax calculated?

Professional tax is a state-level tax deducted from salary. It is not uniform across India. Each state has its own slabs, frequency and deduction months.

| Frequency | Examples | Deduction pattern | |---|---|---| | Monthly | Karnataka, Maharashtra | Deducted every month | | Half-yearly | Tamil Nadu, Telangana | Deducted in specific months only | | Annual | Some states | Deducted once a year |

The Constitution (Article 276) caps the total professional tax a state can collect in a year at ₹2,500. Karnataka, for example, deducts ₹200 per month for salaries between ₹15,000 and ₹25,000 and ₹208 for salaries above ₹25,000.

What is labour welfare fund?

Labour Welfare Fund is a state-specific contribution used for worker welfare schemes. It applies in states like Maharashtra, Karnataka, Tamil Nadu and Telangana. The employee and employer each contribute a small fixed amount, usually deducted once or twice a year.

What are NCP days and why do they matter?

NCP stands for "non-contributory period" days. These are days in a month when no PF contribution is paid, usually because the employee was on leave without pay. NCP days reduce the employee's pensionable service and can affect eligibility for pension and higher pension benefits.

What are the main due dates for statutory remittance?

| Deduction | Due date | Portal | |---|---|---| | TDS | 7th of next month | Challan ITNS 281 | | PF ECR | 15th of next month | EPFO employer portal | | ESI contribution | 15th of next month | ESIC employer portal | | Professional tax | Varies by state | State PT portal |

Worked example

An employee in Bengaluru has a monthly gross of ₹25,000: basic ₹12,500, HRA ₹5,000, special ₹7,500.

• Employee PF: 12% of ₹12,500 = ₹1,500
• Employer PF: 12% of ₹12,500 = ₹1,500
• EPS: 8.33% of ₹12,500 = ₹1,041 (rounded to ₹1,042)
• ESI: 0.75% of ₹25,000 = ₹188
• Professional tax: ₹200

The employer remits PF by the 15th, ESI by the 15th, TDS by the 7th and PT by the 20th of the following month.