PF, ESI, TDS: a complete guide for Indian small businesses

If you run a small business in India with employees, you are legally required to manage several statutory deductions. The three most important are Provident Fund (PF), Employee State Insurance (ESI), and Tax Deducted at Source (TDS). Getting these wrong is not just an accounting error — it is a compliance violation with real penalties.

Provident Fund (PF)

PF is mandatory for establishments with 20 or more employees, though many smaller companies opt in voluntarily. Both the employee and employer contribute 12% of PF wages (Basic + DA). The employer's 12% is split: 3.67% to the employee's EPF account, 8.33% to the Employee Pension Scheme (EPS, capped at wages of 15,000 rupees), and 0.50% to EDLI (also capped at 15,000). The wage ceiling of 15,000 applies only to EPS and EDLI — not to EPF.

Employee State Insurance (ESI)

ESI applies to employees earning gross wages up to 21,000 rupees per month. The employee contributes 0.75% and the employer contributes 3.25% of gross wages. Once an employee's salary exceeds 21,000 rupees, they exit ESI eligibility. payora automatically stops ESI deductions when an employee crosses this threshold.

Tax Deducted at Source (TDS)

TDS is calculated based on the employee's projected annual income and applicable tax regime (old or new). Under the new regime, income up to 12 lakh rupees is effectively tax-free after the standard deduction and rebate under Section 87A. Under the old regime, the basic exemption is lower but employees can claim deductions under 80C, 80D, HRA, and other sections. payora supports both regimes and calculates monthly TDS by projecting the annual liability and dividing by remaining months.

Professional Tax (PT)

Professional Tax is a state-level tax with different slabs and rates across states. Maharashtra, Karnataka, West Bengal, and several other states levy PT. payora supports slab-based PT calculation for all major states and allows custom configuration for states with unique rules.

How payora handles compliance

All statutory rates are stored in a dedicated rates table in the database. When the government announces new rates (typically once a year), your CA or admin updates the rates in Settings — no code deployment needed. The payroll engine picks up the new rates automatically for all future payroll runs. payora also includes a compliance visibility dashboard where your CA can review, approve, and lock statutory rates for each financial year.