Statutory Deductions That Are Actually Statutory
PF, ESI, Professional Tax, LWF and TDS computed to the rules as written — including the ones most systems get wrong, like ESI's round-up and the February professional tax instalment.
Indian payroll compliance is not difficult so much as it is scattered. Provident fund is central. ESI is central but administered regionally. Professional tax is a separate state statute with its own slabs, its own return calendar and its own registration, repeated across every state you employ in. Labour welfare fund is another. Income tax changes at every Budget, and the rules for which of the two regimes applies to an employee depend on a declaration they make once a year. Individually none of these is hard. Collectively they are spread across more statutes than any single payroll team naturally tracks, which is why they drift — and because the amounts are usually small, nobody notices a deduction that has been quietly wrong for two years. This page sets out precisely what AttendancePay computes, how, and where the edges are. The details matter more than the summary: ESI rounds up rather than to the nearest rupee, professional tax is levied on earned rather than contractual salary, the EPS ceiling stays at ₹15,000 independently of any custom EPF ceiling, and several states levy a higher final instalment in February. Each of those is a place where a system that is nearly right produces a number that is wrong.
Where statutory deductions quietly go wrong
The state applied is the company's, not the employee's
Professional tax and labour welfare fund are levied by the state where the employee works. Systems that hold a single company-level state apply the wrong statute to everyone outside head office, which under-collects in one state and over-deducts in another at the same time.
Slab tables go stale invisibly
A state raises its exemption threshold and the payroll configuration is never updated. The deduction still looks plausible every month, so nobody investigates — until an employee does the arithmetic or an auditor asks.
Rounding is done the ordinary way
ESI contributions round up to the next rupee under Rule 51, not to the nearest. A register that rounds normally will never reconcile to the ESIC challan, and the differences are individually too small to chase and collectively permanent.
Deductions are computed on contractual salary
An employee with unpaid absence earned less than their contractual gross, and in several states that moves them into a lower professional tax slab or out of the levy entirely. Applying the slab to contractual gross over-deducts from exactly the lowest-paid employees.
ESI is switched off the moment someone crosses the ceiling
ESI runs on fixed half-yearly contribution periods. An employee who crosses ₹21,000 mid-period stays covered until that period ends, with contributions on actual wages. Cutting them off immediately creates both a contribution shortfall and a coverage error.
How indian payroll compliance works
- 1
The employee's work state drives state levies
Professional tax and labour welfare fund resolve from the employee's recorded work state, falling back to the state on their assigned branch — so a multi-state employer applies the correct statute per person.
- 2
Each deduction is computed from earned salary
Deductions are derived from the salary actually earned in the period, which is the statutory basis, rather than from the contractual figure on the offer letter.
- 3
Statutory edges are implemented as rules, not approximations
The EPS cap holds at the statutory ₹15,000 independently of any custom EPF ceiling; ESI rounds up per Rule 51; professional tax applies the higher February instalment only to employees who actually owe it.
- 4
Per-employee exemptions are recorded and, when enabled, applied
Disability status and exemption categories are captured against the employee for compliance reporting, and can be enforced in the calculation when a company chooses to switch that on.
- 5
Filing artefacts are generated from the same numbers
The PF ECR file, the professional tax register and the annual TDS statement all read the figures payroll computed, so what you file matches what you paid.
What you get
Provident Fund — EPF and EPS
Employee EPF at 12% of PF wages, employer EPS at 8.33% capped at ₹1,250, and employer EPF as the balance. The statutory ₹15,000 wage ceiling applies by default and is configurable per company; the EPS ceiling is held at ₹15,000 independently, which is the correct statutory treatment. The PF wage base can be Basic alone or Basic plus selected components.
ESI with the contribution-period rule
Employee 0.75% and employer 3.25%, both rounded up to the next rupee per Rule 51, with the ₹21,000 eligibility ceiling.
Professional Tax across 30 states and UTs
Slab-based professional tax with per-state schedules, exempt thresholds, and the higher final instalment several states levy in February — applied only to employees who owe the tax, never to an exempt slab. Levied on earned gross where a company opts into that basis.
Labour Welfare Fund
State-specific employee and employer contributions, with per-state deduction months and salary ceilings, so LWF is deducted in the months that state actually levies it rather than every month.
TDS under both regimes
Old and new regime per employee declaration, with financial-year-versioned slabs, standard deduction, HRA exemption from declared rent, Chapter VI-A deductions, employer NPS under 80CCD(2), the section 87A rebate and surcharge with marginal relief. Deducted monthly through the payroll run rather than as a separate year-end exercise.
PF ECR file in EPFO format
Generates the EPFO ECR upload file — UAN, member name, gross wages, EPF wages, EPS wages, EDLI wages and contributions — ready for the employer portal.
Annual TDS statement for Form 24Q
Per-employee, per-financial-year totals laid out to match what your CA needs to prepare Form 24Q: PAN, gross and taxable salary paid, approved deductions, the quarterly TDS split and total TDS deducted.
Compliance registers
Professional tax register, statutory deduction registers and payroll registers exportable per period and per branch.
Who this is for
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Frequently asked questions
Is the ₹15,000 PF ceiling configurable?⌄
Yes. By default PF wages are capped at the statutory ₹15,000. A company can set a custom ceiling, or remove the cap entirely so EPF is contributed on actual wages. The EPS portion always remains capped at the statutory ₹15,000 regardless, which is the correct treatment and a common thing to get wrong.
How is ESI rounded?⌄
Up to the next whole rupee, for both the employee and the employer share, computed independently. That is Rule 51 of the ESI (Central) Rules. On a gross of ₹18,450 the employee share is ₹139 rather than ₹138. Systems that round to the nearest rupee produce a register that never reconciles to the ESIC challan.
Which states are supported for professional tax?⌄
Thirty states and union territories are configured, covering the levying states and explicitly recording the ones that do not levy professional tax so a branch there produces a stated zero rather than a silent one. Slabs, exempt thresholds and February instalment rules are held per state, and each entry records when it was last verified against the state notification.
Is professional tax calculated on contractual or earned salary?⌄
Either, as a per-company setting. Earned gross is the statutory basis and is the correct choice for employees with unpaid absence, since it can move them into a lower slab or out of the levy. It is opt-in rather than default because switching an existing company changes historical comparability, which should be a decision rather than something that happens to you in an upgrade.
Does it file returns with EPFO, ESIC or the income tax department?⌄
No. It generates the artefacts you file with — the PF ECR file in EPFO's upload format, statutory registers, and the annual TDS statement your CA needs for Form 24Q. Submission happens on the respective government portals. We would rather be precise about that than describe a report as a filing.
How are tax slab changes handled at Budget time?⌄
Income tax slabs are versioned by financial year in configuration, so a new year's slabs are added alongside the existing ones rather than replacing them. That keeps prior-year calculations reproducible, which matters when you need to explain a deduction from eighteen months ago.
Can an individual employee be exempted from a statutory deduction?⌄
Yes. Exemption categories and disability status are recorded against the employee. Enforcement in the calculation is opt-in per company, so recording the data for compliance reporting never silently changes anyone's pay until the company decides it should.