Payroll Compliance Checklist for Indian Businesses

Payroll compliance is one of the most critical responsibilities for Indian businesses — and also one of the most complex.

Every month, Indian employers must calculate and deposit statutory deductions correctly and on time:

✅ Provident Fund (PF)
✅ Employee State Insurance (ESI)
✅ Tax Deducted at Source (TDS)
✅ Professional Tax (PT)
✅ Labour Welfare Fund (LWF)
✅ Bonus Act → compliance based on eligibility

Failure to comply can result in:

Heavy penalties and interest
Legal notices from EPFO, ESIC, Income Tax Dept, State PT offices
Damage to brand reputation
Employee dissatisfaction

In this blog, we provide a practical Payroll Compliance Checklist for Indian businesses — and show how PagarAi’s Compliance Engine automates compliance and reduces risk.

Table of Contents

Why Payroll Compliance is Challenging for Indian Businesses ?

Even well-intentioned businesses often face challenges such as:

Frequent law updates (PF wage limits, ESI applicability, TDS slabs)
Manual errors in calculation → penalties
Missing filing deadlines → late payment interest
Inconsistent treatment of bonuses, allowances, and overtime
Lack of central visibility → compliance scattered across Excel files

Payroll Compliance Checklist (India):

Here’s a monthly checklist your HR & Payroll team should follow:

1️⃣ Provident Fund (PF):

✅ Deduct 12% PF from applicable employees’ basic salary + employer contribution
✅ Deposit PF contributions by 15th of the following month
✅ Generate & file PF ECR report online
✅ Issue UAN statement to employees regularly

2️⃣ Employee State Insurance (ESI):

✅ Deduct 0.75% employee contribution, add 3.25% employer contribution
✅ Applicable to employees earning <= ₹21,000/month
✅ Deposit ESI contributions by 15th of the following month
✅ File ESI returns online

3️⃣ Tax Deducted at Source (TDS):

✅ Calculate TDS on salaries as per applicable slabs
✅ Deduct TDS every month → deposit by 7th of the following month
✅ File Quarterly TDS Returns (Form 24Q)
✅ Issue Form 16 to employees by June 15 of following year

4️⃣ Professional Tax (PT):

✅ Applicable in states where PT is levied (e.g. West Bengal, Maharashtra, Karnataka, etc.)
✅ Deduct applicable PT slab based on gross salary
✅ Deposit PT as per respective State PT rules & deadlines

5️⃣ Labour Welfare Fund (LWF):

✅ Applicable in certain states → check applicability for your state
✅ Deduct nominal employee + employer contribution
✅ Deposit & file as per respective State LWF rules

6️⃣ Bonus Compliance (Bonus Act, 1965):

✅ Applicable for employees earning <= ₹21,000/month
✅ Pay minimum 8.33% of Basic + DA annually as statutory bonus
✅ Pay bonus within 8 months of financial year close
✅ Maintain proper bonus registers & reports

👉 PagarAi auto-tracks bonus eligibility & generates required reports.

Why Automate Payroll Compliance?

✅ Reduces risk of penalties & interest
✅ Improves accuracy — eliminates manual errors
✅ Ensures on-time deposits & filings
✅ Gives centralized visibility → across PF, ESI, TDS, PT, LWF, Bonus
✅ Saves HR/Admin time — focus on value-added work

How PagarAi’s Compliance Engine Simplifies Payroll Compliance ?

PagarAi’s Compliance Engine is built specifically for Indian businesses → MSMEs to Enterprises.Key features:

✅ Fully integrated with Payroll Software & Attendance System → no manual data entry
✅ Auto-calculates PF, ESI, TDS, PT, LWF deductions
✅ Generates ready-to-upload reports for EPFO, ESIC, Income Tax, State PT portals
✅ Compliance calendar → helps track due dates
✅ Real-time dashboard → full compliance visibility for management
✅ Audit-friendly → easy historical data access

👉 Explore PagarAi Compliance Engine → make your business audit-ready.