20 Indian Payroll Compliance Questions Answered by an HR Expert

These questions come directly from HR managers and founders who asked us during onboarding calls, product demos, and our monthly compliance webinars. The answers reflect Indian law as it stands in 2025–26.

Q1: Which states have Professional Tax in India?

About 17 states and union territories levy PT. The main ones relevant to most SMEs: Maharashtra, Karnataka, West Bengal, Andhra Pradesh, Telangana, Tamil Nadu, Gujarat, Kerala, Madhya Pradesh, Bihar, Assam, Meghalaya, Tripura, Jharkhand, Sikkim, Punjab (a flat ₹200 for income-tax payers) and Puducherry (UT).

Odisha repealed its professional tax from 1 April 2026. States that do NOT have PT: Delhi, Rajasthan, Uttar Pradesh, Haryana, Chhattisgarh, Himachal Pradesh, Uttarakhand, Goa, Jammu & Kashmir.

Q2: What is the PT slab in Maharashtra?

Maharashtra deducts PT monthly on a slab basis. Men earning up to ₹7,500 pay nothing, ₹7,501 to ₹10,000 pays ₹175, and above ₹10,000 pays ₹200 a month with ₹300 in February, so the year totals ₹2,500. Women earning up to ₹25,000 a month are exempt.

Q3: Is PT applicable to contract workers / gig workers?

PT applicability depends on the state's definition of "employee." In most states, PT applies to anyone under a contract of service (including fixed-term and probationary employees). Pure contractors and gig workers — who are not on payroll — are generally excluded, but this varies by state. Karnataka explicitly includes self-employed professionals.

Q4: Which states have Labour Welfare Fund (LWF)?

LWF applies in: Andhra Pradesh, Chandigarh, Chhattisgarh, Delhi, Goa, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Tamil Nadu, and Telangana. The contribution amounts, frequency (monthly/bi-annual/annual), and the employer:employee split differ significantly by state.

Q5: What is the PF contribution rate and who must deduct it?

• ✓Employee contribution: 12% of Basic + DA
• ✓Employer contribution: 12% of Basic + DA (of which 8.33% goes to EPS and 3.67% to EPF)
• ✓Applicability: All establishments with 20 or more employees are mandatorily covered under the EPF Act 1952. Below 20, voluntary coverage is possible.
• ✓Wage ceiling for mandatory PF: ₹25,000 a month from 17 September 2026 (raised from ₹15,000 by S.O. 5109(E)). Employees earning up to this amount must be covered; employer and employee may jointly contribute on higher wages. EPS contribution is 8.33% of wages up to the ceiling, so at most ₹2,083 a month.

Q6: When must we file the PF ECR (Electronic Challan cum Return)?

The PF ECR must be filed and the challan paid by the 15th of the following month. For example, March payroll ECR must be filed and paid by 15 April. Late payment attracts interest at 12% p.a. and damages from 5% to 25% of arrears depending on delay duration.

Q7: What is the ESIC wage ceiling?

Employees earning a gross salary of ₹21,000 per month or less are covered under ESIC. Once an employee's salary crosses ₹21,000, they exit ESIC (but continue until the end of the contribution period).

• ✓Employee contribution: 0.75% of gross wages
• ✓Employer contribution: 3.25% of gross wages

Q8: Is TDS on salary deducted on CTC or net salary?

TDS is deducted from gross taxable salary — which is CTC minus exempted components (HRA exemption if applicable, LTA, standard deduction of ₹75,000 under the new regime). From FY 2024–25, the new tax regime is the default under Section 115BAC.

Q9: What is the penalty for incorrect TDS deduction?

If TDS is not deducted when required, the employer is treated as "assessee in default" under Section 201. Interest is levied at 1% per month from the date TDS was due to deduction, plus 1.5% per month from deduction to deposit. A penalty equal to the TDS amount can also be imposed under Section 271C.

Q10: How do we handle payroll for employees who joined mid-month?

For mid-month joiners, gross pay is prorated on a per-day or per-working-day basis. Statutory deductions (PF, ESIC, PT) are computed on the actual prorated gross for that month. There is no minimum floor for the first partial month.

Q11: Is bonus included in PF computation?

Statutory bonus (under the Payment of Bonus Act 1965) is not included in the PF wage. However, a "performance bonus" structured as part of fixed monthly employment terms may qualify as wages and attract PF. One-time annual bonuses linked to performance are generally excluded.

Q12: When does ESIC contribution stop when salary crosses the ceiling?

ESIC operates in contribution periods (April–September and October–March). Once an employee's salary exceeds ₹21,000, ESIC deductions stop from the next contribution period, not immediately. An employee crossing the ceiling in July will continue ESIC until September, then stop from October.

Q13: Is Gratuity deducted from monthly salary?

No. Gratuity is not deducted monthly. It is funded by the employer as a liability that accrues at 4.81% of Basic + DA per month, payable at separation after 5 continuous years of service (or upon death/disability where the 5-year condition is waived).

Q14: What is the difference between EPF and VPF?

EPF is the mandatory 12% employee contribution. VPF (Voluntary Provident Fund) is an additional voluntary contribution beyond the mandatory 12%, up to 100% of Basic + DA. VPF earns the same 8.1% p.a. interest and qualifies for 80C deduction under the old tax regime.

Q15: Can employees with 0 HRA exemption still use the standard deduction?

Yes. The standard deduction of ₹75,000 (under the new regime for FY 2024–25 onwards) applies to all salaried employees regardless of HRA. Under the old regime, it is ₹50,000.

Q16: Do we need to file Form 138 (Form 24Q) even if no TDS is deducted?

Only if TDS was actually deducted. If no employee's tax liability triggers a deduction (nil tax up to ₹7 lakh under the new regime), you are not required to file Form 138 (Form 24Q) — but if you hold a TAN and deducted TDS on even one employee, quarterly filing is mandatory.

Q17: How is minimum wage computed for piece-rate workers?

For piece-rate workers, minimum wage compliance is checked against the total monthly earnings. If a piece-rate worker's total monthly income (pieces × rate) falls below the minimum wage for their skill category and state zone, the employer must top it up. SleetHR flags this automatically before payroll is finalized.

Q18: What happens to PF when a contract employee joins as a permanent employee?

If the same person has a UAN, their PF account continues — no new UAN is issued. The employer should ensure the existing UAN is linked and the ECR correctly maps to it. Joint Declaration may be needed if there were discrepancies in name or date of birth between the contract and permanent records.

Q19: Is professional tax payable on arrear salary?

Yes. Arrear salary is taxed in the year of receipt (or the year it accrued, if opted under Section 89 relief). PT is generally computed on the gross salary paid in the month — including arrears — so a large arrear payment may push an employee into a higher PT slab for that month. SleetHR handles this automatically by recomputing PT on the month's total gross.

Q20: Can we pay salary in cash instead of bank transfer?

Under the Payment of Wages Act, salary up to ₹24,000/month can be paid in cash unless the establishment is notified to use electronic transfer. Above ₹24,000, bank transfer is required. Most states have extended the electronic transfer mandate to cover all establishments regardless of wage level.