Payroll Compliance Checklist for Indian Businesses (2025-26)

Running payroll in India is not just about transferring salaries to bank accounts. It involves a web of statutory obligations — EPF, ESI, TDS, Professional Tax, minimum wages, gratuity, and bonus. Missing any of these can lead to penalties, legal notices, and employee dissatisfaction.

This checklist will help you ensure complete payroll compliance for your business in FY 2025-26.

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Monthly Compliance Checklist

✅ EPF (Employees' Provident Fund)

• [ ] Calculate EPF on Basic + DA for all eligible employees
• [ ] Employee contribution: 12% of Basic + DA
• [ ] Employer contribution: 12% (split between EPF 3.67% and EPS 8.33%)
• [ ] Apply ₹15,000 wage ceiling for EPS calculation
• [ ] Deposit contribution by 15th of next month
• [ ] File ECR (Electronic Challan Return) on EPFO portal

✅ ESI (Employees' State Insurance)

• [ ] Identify employees earning ≤ ₹21,000/month (gross)
• [ ] Employee contribution: 0.75% of gross salary
• [ ] Employer contribution: 3.25% of gross salary
• [ ] Deposit by 15th of next month
• [ ] Register new employees within 10 days of joining

✅ TDS on Salary

• [ ] Calculate income tax based on employee's declared tax regime (Old or New)
• [ ] Collect investment declarations (80C, 80D, HRA, etc.) for Old Regime
• [ ] Deduct TDS proportionally from monthly salary
• [ ] Deposit TDS by 7th of next month
• [ ] File Form 24Q quarterly

✅ Professional Tax

• [ ] Check applicable state rules (rates vary by state)
• [ ] Deduct Professional Tax from employee salary
• [ ] Deposit to state government as per schedule
• [ ] Maximum Professional Tax: ₹2,500 per year in most states

✅ Salary Processing

• [ ] Process salary by month-end or agreed payroll date
• [ ] Include overtime, incentives, and deductions
• [ ] Generate and distribute digital payslips
• [ ] Make bank transfers (NEFT/IMPS)

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Quarterly Compliance

✅ TDS Returns

• [ ] File Form 24Q (TDS on salary) by:
  • Q1 (Apr-Jun): 31st July
  • Q2 (Jul-Sep): 31st October
  • Q3 (Oct-Dec): 31st January
  • Q4 (Jan-Mar): 31st May

✅ ESI Returns

• [ ] File half-yearly return by 12th May (Oct-Mar period) and 12th November (Apr-Sep period)

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Annual Compliance

✅ Form 16

• [ ] Generate Form 16 for all employees by 15th June
• [ ] Includes complete TDS details for the financial year

✅ Annual EPF Return

• [ ] File annual return by 25th April

✅ Bonus

• [ ] Payment of Bonus is applicable to establishments with 20+ employees
• [ ] Minimum bonus: 8.33% of salary (Basic + DA)
• [ ] Maximum bonus: 20% of salary
• [ ] Pay within 8 months of closing the accounting year

✅ Gratuity

• [ ] Applicable to employees with 5+ years of continuous service
• [ ] Calculation: Last drawn salary × 15/26 × years of service
• [ ] Maximum gratuity amount: ₹25,00,000 (after 2024 amendment)
• [ ] Pay within 30 days of it becoming payable

✅ Minimum Wages

• [ ] Verify that all employee salaries meet state-specific minimum wage requirements
• [ ] Minimum wages are revised periodically — check for updates

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State-Specific Obligations

Payroll compliance varies by state. Some key differences:

| State | Professional Tax Max | Labour Welfare Fund | Shops & Establishment | |---|---|---|---| | Maharashtra | ₹2,500/year | ₹12/year + ₹3 employer | Annual renewal | | Karnataka | ₹2,400/year | ₹20/year + ₹20 employer | Annual renewal | | Tamil Nadu | ₹2,500/year | Not applicable | Annual renewal | | Haryana | Not applicable | ₹25/year + ₹25 employer | Annual renewal | | Delhi | Not applicable | Not applicable | One-time registration |

Note: Always check current state regulations, as these can change.

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Penalty Chart for Non-Compliance

| Violation | Penalty | |---|---| | Late EPF deposit | 12% interest + 5-25% damages | | Late ESI deposit | 12% interest + up to 25% damages | | Late TDS deposit | 1.5% per month interest + ₹200/day penalty (capped at TDS amount) | | Not paying minimum wages | Fine up to ₹50,000 or imprisonment | | Not paying bonus | Fine up to ₹1,000 or imprisonment up to 6 months | | Not paying gratuity | Fine + imprisonment up to 2 years |

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How to Stay Compliant

1. Automate payroll processing: Manual calculations lead to errors. Use HRMS software that handles EPF, ESI, and TDS automatically.

2. Set up calendar reminders: Mark the 7th and 15th of every month for TDS and EPF/ESI deposits.

3. Update salary structures after increments: Recalculate all statutory contributions when salaries change.

4. Keep employee records updated: PAN, Aadhaar, UAN, and ESI numbers must be current.

5. Review compliance quarterly: Do a quarterly audit of payments, filings, and employee registrations.

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Conclusion

Payroll compliance in India involves multiple obligations running on different schedules. The cost of non-compliance — both in penalties and employee trust — is significantly higher than investing in proper payroll automation.

Use this checklist as your monthly reference, and consider automating your payroll with XoMB HR to eliminate manual compliance risk.