The Ultimate Indian Payroll Compliance Checklist

What Is Payroll Compliance in India?

Payroll compliance means following every legal and regulatory requirement tied to paying employees. That includes calculating salaries correctly, deducting the right taxes and contributions (TDS, PF, ESI, and professional tax among them), filing returns on time, and following applicable labour law. Getting any of this wrong can mean penalties, strained employee relationships, and disruption to the business itself.
Manual payroll makes all of this harder: more room for calculation slips, missed deadlines, and delayed salary payments, all of which are avoidable with a consistent process.
Done well, payroll compliance pays for itself:

• Correct pay: fewer wage, tax, and benefit errors.
• No legal penalties: avoids fines for late or missed filings.
• Audit-ready records: documentation stays in order for audits and disputes.
• Fewer payroll delays: less disruption from last-minute corrections.

Most of these statutes now sit inside the Code on Social Security, 2020 (PF, ESI, gratuity, maternity benefit) or the Code on Wages, 2019 (bonus), both in force since November 21, 2025. TDS still sits outside the labour codes, under the Income-tax Act.
Who each requirement applies to, at a glance:

Payroll Compliance Checklist for 2026

Use this section as a practical reference point for what needs to be done, when, and why.

Before Running Payroll

Set a strong foundation for accuracy and legal compliance:

• Business registration: confirm registration with the MCA, GST authorities, and relevant labour departments.
• Employee classification: categorise each worker as full-time, part-time, intern, or contractor.
• Statutory enrolment: register eligible employees under EPF, ESI, and Professional Tax.
• Required registers: keep an attendance, wage, and leave register current; inspectors ask for these first.
• Banking and payroll schedule: set up bulk-transfer payments and a pay cycle that follows your state’s Shops and Establishments Act.
• Tax documentation: collect PAN, Aadhaar, and TDS declarations before the first run.

During Payroll Processing

This is where earnings, deductions, and payment accuracy come together:

• Gross-to-net calculations: verify salaries, bonuses, overtime, and leave against state wage-ceiling rules.
• Payroll tax withholdings: deduct TDS and Professional Tax, and calculate EPF/ESI contributions correctly.
• Payslip distribution: issue a clear breakup, basic, allowances, deductions, net pay, that employees can access on their own.
• Salary disbursement: pay on or before the 7th of the following month, accounting for weekends and bank holidays.

After Running Payroll

Once salaries are out, the focus shifts to compliance and audit-readiness:

• Tax filings and deposits: file the quarterly TDS return (Form 138) and deposit EPF and ESI contributions by the 15th of the following month.
• Payroll recordkeeping: keep payslips, attendance logs, TDS challans, and statutory filings on hand. Retention periods differ by record type: TDS-related books and documents must be kept for seven tax years under Rule 46(9) of the Income-tax Rules, 2026, while attendance, wage, and overtime/deduction registers only need five years under Rule 51(4) of the Code on Wages (Central) Rules, 2026.
• Benefits remittance: transfer EPF and ESI contributions on time; delays attract interest.
• Legal and tax updates: track changes to tax slabs, minimum wages, and PF limits at both the central and state level.

The full deadline picture, EPF, ESI, TDS, Professional Tax, and gratuity together, is in the table further down this page.

Statutory Payroll Deductions and Compliance Requirements

Payroll compliance in India runs on six statutory components, each with its own rate, filing rhythm, and paper trail. Here’s what each one requires today.

TDS (Tax Deducted at Source)

TDS is deducted from salary per the employee’s income tax slab and deposited with the Income Tax Department. Employers file a quarterly return, Form 138 (previously Form 24Q), and an annual certificate, Form 130 (previously Form 16); deadlines for both are in the table further down.

EPF (Employees’ Provident Fund)

EPF is a retirement scheme under the Code on Social Security, applying once an establishment crosses 20 or more employees. Both sides typically contribute 12% of basic wages plus DA, up to a ₹15,000/month ceiling, filed monthly via ECR.

ESI (Employees’ State Insurance)

ESI covers medical and cash benefits once an establishment crosses 10 or more employees (1+ in hazardous units), for wages up to ₹21,000/month. Employer/employee contribute 3.25%/0.75% of gross salary; returns are half-yearly.

Professional Tax

Professional Tax is a state-level deduction, untouched by the new central labour codes. Rates and slabs vary by state, and employers are responsible for deducting and remitting it on time.

Gratuity

Gratuity is a one-time payment after 5+ years of service, once an establishment crosses 10 or more employees, under Sections 53 and 56 of the Code on Social Security, 2020. Formula: (last drawn salary × 15 × years of service) ÷ 26, payable within 30 days.
Full walkthrough on our Gratuity Act page and calculator.

Bonus

Annual bonus is now under Section 26 of the Code on Wages, 2019, applying once an establishment crosses 20 or more employees. Employers pay 8.33% to 20% of annual wages, depending on profits, to employees earning up to ₹21,000/month.
Also worth tracking: minimum wages, equal pay, Labour Welfare Fund where states require it, and maternity benefit (26 weeks’ paid leave).
Thresholds, the form each one runs on, and what non-compliance costs:

Note: Repeat offences generally carry stiffer penalties under Section 134 of the Code on Social Security, up to 2 years plus ₹2,00,000 generally, or 2 to 3 years plus ₹3,00,000 specifically for repeated failure to pay contributions, cess, maternity benefit, gratuity, or compensation.

What are the Common Payroll Compliance Mistakes to Avoid?

Four mistakes account for most of the compliance trouble we see:

Misclassifying Employees

Marking someone as a contractor or an exempt worker when they don’t meet the test can mean unpaid overtime, missing benefits, and inaccurate tax reporting, and it tends to surface during an audit. Review each role against how the work is actually performed and revisit the classification whenever a role changes.

Missing Filing Deadlines

Late salary payments, late EPF or ESI deposits, or a missed Form 138 or Form 130 deadline all damage employee trust and invite interest or penalties. A payroll calendar with every processing date, tax deadline, and filing requirement, and a named owner for each one, prevents most of this.

Incomplete Recordkeeping

Disorganised or missing payroll records slow down audits and create real legal exposure. TDS-related books and documents must be kept for seven tax years, while attendance and wage registers only need five years. Maintain complete records for each pay cycle, gross pay, withholdings, benefits, hours worked, and check periodically that nothing is missing.

Incorrect Deduction Calculations

This covers more ground than it sounds like: outdated tax slabs, taxable allowances left out of TDS calculations, and wage garnishments applied incorrectly all fall here, and each one causes underpayment or non-compliant filings. Use payroll software that keeps statutory rates current, and validate attendance and deduction inputs before every run.

How Payroll Software Ensures Compliance

The right payroll software should reduce manual tracking, not add to it. Look for automatic legal updates, so EPF and ESI thresholds, tax slabs, and minimum wage revisions are reflected without you tracking every notification by hand. Look for pre-formatted compliance reports, Form 130, Form 138, PF and ESI challans, and Professional Tax returns, generated straight from processed payroll rather than assembled after the fact. Direct filing with portals like TRACES, EPFO, and state PT departments saves a manual step and cuts down on filing errors. Real-time error checks, flagging a missing PAN or a contribution-limit mismatch during the run itself rather than after, catch problems while they’re still cheap to fix. And because payroll touches both employee data and financial reporting, role-based access lets HR manage onboarding and leave while finance verifies filings independently, without either team seeing more than it needs to.
Keka is built around exactly this: an integrated payroll calendar, a compliance-reports dashboard, and built-in validation checks, so the compliance work happens inside the payroll run instead of around it.

Key Compliance Deadlines at a Glance

Whether you run payroll weekly or monthly, these are the dates that actually matter, one table for every recurring deadline this page touches:

Final Thoughts

A payroll compliance checklist helps your business meet legal requirements, avoid penalties, and build employee trust, while keeping the process itself accurate and audit-ready.
Start with the checklist above, phase by phase, rather than trying to fix everything at once. Keka takes the manual tracking out of the picture: it stays current with tax rules and statutory requirements, generates the reports above, and manages EPF, ESI, and TDS filings from one place.