# India payroll compliance guide FY 2026-27 | Peoplo.ai

URL: https://peoplo.ai/in/en/compliance/

> Plain-English guide to Indian payroll rules for FY 2026-27: the ₹25,000 PF ceiling, ESI, professional tax, LWF, TDS regimes, HRA, gratuity and F&F.

People, companies and figures in product examples on this page are sample data, not customers.

India compliance guide

# Indian payroll rules, in plain English

What employers need to deduct, pay and file for FY 2026-27, with the numbers, the dates and where they come from. Checked 22 October 2026.

**What changed recently.** The four labour codes took effect on 21 November 2025, and the EPF wage ceiling rose to ₹25,000 a month from 17 September 2026. This guide reflects both. It is general information, not legal or tax advice.

## Provident fund (PF)

Employers with 20 or more people must register with EPFO. Both employer and employee pay 12% of the PF wage (basic pay plus dearness allowance). Contributions are compulsory up to the wage ceiling of **₹25,000 a month from 17 September 2026** , up from ₹15,000. Above the ceiling, PF is voluntary.

For September 2026 the month is split: the old ₹15,000 ceiling applies for 1 to 16 September and the new one for 17 to 30 September.

| Contribution | Rate | At the ₹25,000 ceiling |
| --- | --- | --- |
| Employee PF | 12% | ₹3,000 |
| Employer: pension (EPS) | 8.33% | ₹2,083 |
| Employer: provident fund (EPF) | 3.67% | ₹917 |
| Employer: insurance (EDLI) | 0.5% | ₹125 |
| Employer: admin charges | 0.5% | ₹125 (minimum ₹500 per establishment) |

Under the labour codes, wages for PF must be at least half of total pay. If allowances are more than 50% of an employee's remuneration, the excess is added back to wages. Payment is due by the 15th of the following month.

Sources · checked 22 October 2026

- [EPFO wage ceiling FAQs (S.O. 5109(E))](https://www.staffnews.in/wp-content/uploads/2026/10/EPFO_Wage_Ceiling_FAQs.pdf)
- [KPMG: FAQs on the EPFO wage ceiling, 17 September 2026](https://assets.kpmg.com/content/dam/kpmgsites/in/pdf/2026/09/KPMG-Flash-News-FAQs-on-EPFO-Wage-Ceiling-Limit.pdf)

## ESI

Employees State Insurance covers employees earning up to **₹21,000 a month** (₹25,000 for persons with disabilities). The employee pays 0.75% of gross wages and the employer pays 3.25%. Employees whose daily average wage is ₹176 or less pay nothing; the employer share still applies.

The ESI Act is now part of the Code on Social Security. Existing ESI rules and rates continue during the transition. Payment is due by the 15th of the following month.

[Calculate ESI for a salary](https://peoplo.ai/in/en/tools/esi-calculator/)

Sources · checked 22 October 2026

- [ESIC: coverage and the wage ceiling](https://www.esic.gov.in/coverage)
- [ESIC: contribution rates, periods and due dates](https://www.esic.gov.in/contribution)
- [ESIC: ESI (Central) Rules, 1950, rule 50 (wages above the ceiling during a contribution period)](https://esic.gov.in/attachments/actfile/35df0691b900c1d011c6ceb7913eb1d6.pdf)

## Professional tax

Professional tax is set by each state, deducted from salary every month and capped at ₹2,500 a year by the Constitution. Deduct it for the state the employee works in, not where the company is registered. Some states, including Delhi, do not charge it. See [professional tax by state](https://peoplo.ai/in/en/compliance/professional-tax/) for each state’s rules.

Karnataka · monthly gross

| Up to ₹24,999 | Nil |
| --- | --- |
| Above ₹24,999 | ₹200 |

₹300 in February.

Maharashtra · monthly gross

| Up to ₹7,500 | Nil |
| --- | --- |
| ₹7,501 to ₹10,000 | ₹175 |
| Above ₹10,000 | ₹200 |

₹300 in February for the top slab. Women earning up to ₹25,000 a month are exempt.

Telangana · monthly gross

| Up to ₹15,000 | Nil |
| --- | --- |
| ₹15,001 to ₹20,000 | ₹150 |
| Above ₹20,000 | ₹200 |

West Bengal · monthly gross

| Up to ₹20,000 | Nil |
| --- | --- |
| ₹20,001 to ₹30,000 | ₹100 |
| ₹30,001 to ₹50,000 | ₹140 |
| ₹50,001 to ₹1,00,000 | ₹170 |
| Above ₹1,00,000 | ₹208 |

Slabs from 1 October 2026. September 2026 and earlier salaries use the old slabs.

Gujarat · monthly gross

| Up to ₹12,000 | Nil |
| --- | --- |
| Above ₹12,000 | ₹200 |

Tamil Nadu (Chennai) · half-yearly gross

| Up to ₹21,000 | Nil |
| --- | --- |
| ₹21,001 to ₹30,000 | ₹180 |
| ₹30,001 to ₹45,000 | ₹425 |
| ₹45,001 to ₹60,000 | ₹930 |
| ₹60,001 to ₹75,000 | ₹1,025 |
| Above ₹75,000 | ₹1,250 |

Greater Chennai Corporation rates. Paid twice a year, by 30 September and 31 March.

Sources · checked 22 October 2026

- [Maharashtra GST Department: profession tax rate schedules](https://www.mahagst.gov.in/en/profession-tax-and-other-rate-schedule)
- [Taxscan: Gujarat revised professional tax rates from 1 April 2022](https://www.taxscan.in/gujarat-notifies-revised-rate-of-professional-tax/172018)
- [Khaitan & Co: Maharashtra professional tax amendment 2023](https://khaitanco.com/thought-leaderships/Maharashtra-Professional-Tax-Amendment-2023-Key-Takeaways)
- [Karnataka Act No. 33 of 2025 (Karnataka Gazette, 15 April 2025), text on TaxGuru](https://taxguru.in/corporate-law/karnataka-tax-profession-trades-callings-employments-amendment-act2025.html)
- [Khaitan & Co: Karnataka professional tax amendment 2023 (₹25,000 threshold)](https://www.khaitanco.com/thought-leaderships/Karnataka-Professional-Tax-Amendment-2023-Major-Changes-Brought-in-Effect)
- [TeamLease RegTech: West Bengal Notification 1607-F.T., 16 September 2026](https://teamleaseregtech.com/updates/article/60103/west-bengal-finance-department-amendment-of-professional-tax-schedule/)
- [DT Next: Chennai Corporation revises profession tax for the second half of 2024-25, 31 December 2024](https://www.dtnext.in/news/chennai/chennai-corporation-approves-professional-tax-hike-of-35-for-fy-2024-25-817413)
- [Indian Kanoon: Telangana Tax on Professions Act, 1987, First Schedule (substituted by Act 12 of 2013)](https://indiankanoon.org/doc/45232106/)

## Labour welfare fund (LWF)

Several states, including Karnataka, Maharashtra, Tamil Nadu, Telangana, West Bengal and Gujarat, run a labour welfare fund. Both employer and employee pay a small fixed amount, usually once or twice a year, and the employer's share is larger. Amounts and due dates differ by state and are revised from time to time, so check the state welfare board before you file.

Sources · checked 22 October 2026

- [Patron Accounting: LWF rates and due dates](https://www.patronaccounting.com/blog/labour-welfare-fund-india-contribution-rates-due-dates)

## Income tax on salary (TDS)

Employers deduct income tax from salary every month, based on the employee's projected income for the year and the regime they choose. The new regime is the default. The rates below are for FY 2026-27 (assessment year 2027-28), for resident individuals below 60. Budget 2026 left the slabs unchanged.

New regime

| Up to ₹4,00,000 | Nil |
| --- | --- |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |

Standard deduction ₹75,000. No tax up to ₹12,00,000 of taxable income after the rebate, with marginal relief just above it.

Old regime

| Up to ₹2,50,000 | Nil |
| --- | --- |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |

Standard deduction ₹50,000. Rebate up to ₹12,500 if taxable income is ₹5,00,000 or less. Allows HRA, section 80C and other deductions.

Add 4% health and education cess on the tax. A surcharge applies above ₹50 lakh. TDS is paid by the 7th of the following month (30 April for March), and the quarterly return is Form 24Q. Employees get Form 16 by 15 June.

[Compare both regimes for your salary](https://peoplo.ai/in/en/tools/income-tax-calculator/)

Sources · checked 22 October 2026

- [Income Tax Department: Finance Bill 2026 memorandum (rates unchanged for tax year 2026-27)](https://www.incometaxindia.gov.in/documents/81799/11848482/memo-2026.pdf)
- [Income Tax Department: deductions allowable, including the standard deduction](https://wm.incometaxindia.gov.in/w/deductions-allowable-to-tax-payer)
- [ClearTax: Section 156 rebate, Income-tax Act 2025](https://cleartax.in/s/section-156-income-tax-act-2025)

## House rent allowance (HRA)

Under the old regime, part of HRA is tax-free. The exempt amount is the lowest of three: the HRA actually received; 50% of salary in 8 cities (Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad, Ahmedabad) or 40% elsewhere; and rent paid minus 10% of salary. Salary here means basic pay plus dearness allowance. HRA is not exempt under the new regime.

[Work out your HRA exemption](https://peoplo.ai/in/en/tools/hra-calculator/)

Sources · checked 22 October 2026

- [ClearTax: HRA exemption and the eight cities](https://cleartax.in/s/hra-house-rent-allowance)

## Gratuity

Gratuity is paid when an employee leaves after at least 5 years of continuous service, or earlier on death or disablement. Under the Code on Social Security, fixed-term employees qualify after 1 year and are paid pro rata.

Gratuity = 15 ÷ 26 × last monthly wages × years of service

Wages are basic pay plus dearness allowance, subject to the 50% rule. A part year of more than six months counts as a full year. The ceiling remains ₹20,00,000 until the government notifies a new one, and gratuity up to that amount is tax-free for private-sector employees. It must be paid within 30 days of becoming due. Many employers set aside about 4.81% of basic pay every month as a provision.

[Calculate gratuity](https://peoplo.ai/in/en/tools/gratuity-calculator/)

Sources · checked 22 October 2026

- [India Code: Code on Social Security, 2020 (gratuity, section 53)](https://www.indiacode.nic.in/bitstream/123456789/16823/1/aA2020-36.pdf)
- [Labour Law Reporter: gratuity under the labour codes](https://labourlawreporter.com/gratuity.asp)

## Full and final settlement

Under the Code on Wages, wages due to an employee who resigns, is removed, dismissed or retrenched must be paid **within two working days** of the last day. A full and final settlement usually covers unpaid salary, leave encashment, bonus, reimbursements, notice pay recovery or payout, and recovery of loans and advances. Gratuity follows its own 30-day deadline. The [full and final settlement guide](https://peoplo.ai/in/en/compliance/full-and-final-settlement/) has a worked example and a checklist.

Sources · checked 22 October 2026

- [The Code on Wages, 2019, section 17(2): Gazette of India, 8 August 2019 (checked 3 November 2026)](https://egazette.gov.in/WriteReadData/2019/210356.pdf)
- [LiveLaw: two working days under the Code on Wages](https://www.livelaw.in/articles/two-working-days-code-wages-employee-final-settlement-552780)

## Let the payroll anomaly check keep track

Peoplo.ai payroll is designed to support PF, ESI, professional tax, LWF and TDS for every state. The payroll anomaly check reviews each run and flags anything that looks wrong before anyone is paid.

[Request a demo](https://peoplo.ai/contact/) [See pricing](https://peoplo.ai/in/en/pricing/)

## Free payroll calculators

[Salary calculator CTC to in-hand pay, with PF, ESI, PT and TDS Open](https://peoplo.ai/in/en/tools/salary-calculator/) [Income tax calculator Old regime or new regime, side by side Open](https://peoplo.ai/in/en/tools/income-tax-calculator/) [HRA calculator How much of your HRA is tax-free Open](https://peoplo.ai/in/en/tools/hra-calculator/) [Gratuity calculator What an employee is owed on exit Open](https://peoplo.ai/in/en/tools/gratuity-calculator/) [Leave encashment calculator Unused leave at exit, and the tax-free part Open](https://peoplo.ai/in/en/tools/leave-encashment-calculator/) [ESI calculator Who is covered and the monthly ESI Open](https://peoplo.ai/in/en/tools/esi-calculator/)