EPF, ESI, TDS: Payroll Compliance for Pvt Ltd Companies
Once your private limited company crosses 20 employees, EPF registration is mandatory from that date — not from the next convenient quarter. This guide covers EPF, ESI, the Code on Wages 50% rule, professional tax, and TDS on salary, and what each one costs you if it's missed.
CA Harun Raaj
pvtltd.co
Legal basis: The Code on Social Security, 2020 (s.2(88), s.2(89), ss.127–128, First Schedule), most of which came into force on 21 November 2025 (S.O. 5319(E)); Income-tax Act, 2025, s.392 (in force from 1 April 2026). Last updated: October 2026.
Key point: A private limited company that reaches 20 employees comes within the provident-fund chapter of the Code on Social Security, 2020 — and late contributions carry interest under s.127 and damages under s.128 of the Code.
Your startup crossed 20 employees last month. Quietly, a clock started ticking on several payroll obligations, and none of them wait for a convenient quarter-end. Contributions owed from the date the threshold was crossed do not disappear because registration came later — and the Code adds interest and damages on top.
Here is what a 20-person private limited company needs to track in 2026.
The law changed in November 2025
The Code on Social Security, 2020 was largely brought into force on 21 November 2025 by S.O. 5319(E). Its s.164(1) repeals the Employees' State Insurance Act, 1948 (item 2 — notified), but the repeal of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (item 3) is not among the items notified. Payroll teams should therefore stop citing the old ESI Act and check, for each PF question, whether the Code provision or the 1952 Act provision applies.
EPF: triggered by headcount, not payroll readiness
Under the First Schedule to the Code, the provident-fund chapter (Chapter III) applies to "every establishment in which twenty or more employees are employed."
The wage ceiling is not in the Code itself: s.2(89) leaves it to notification. S.O. 2702(E) of 29 May 2026 notified ₹15,000 per month for Chapter III, and S.O. 5109(E) dated 17 September 2026 raised it to ₹25,000 per month with effect from 17 September 2026. Recompute any salary structure set up on the old ₹15,000 figure.
ESI: now under the Code, not the 1948 Act
Under the First Schedule to the Code, the ESI chapter (Chapter IV) applies to every establishment in which ten or more persons are employed (other than a seasonal factory), and even to a single-employee establishment carrying on a notified hazardous or life-threatening occupation. Contribution rates are "such rates as may be prescribed by the Central Government" (s.29(2)), and the wage ceiling is a notified amount (s.2(89)) — check the current notification before you compute.
The 50% rule on exclusions
The Code's own definition of wages, s.2(88), includes basic pay, dearness allowance and retaining allowance, and excludes items such as HRA, conveyance allowance, overtime and commission. Its first proviso caps those exclusions: if the payments excluded under sub-clauses (a) to (i) exceed one-half of all remuneration, the excess "shall be deemed as remuneration" and added back to wages.
Example: a monthly CTC of Basic ₹15,000, HRA ₹20,000, Conveyance ₹5,000, Special Allowance ₹30,000 (total ₹70,000). If HRA and conveyance (₹25,000) are the excluded items, they are under half of ₹70,000 and nothing is added back. The test turns on which components fall within the excluded sub-clauses — run it per employee before the next payroll run rather than assuming a "basic-only" PF base is safe.
Professional tax and TDS on salary
Professional tax is a state levy. Each state where you employ staff has its own registration, slab, and due date — check the state's Act and current schedule rather than a generic table. Directors drawing remuneration may also need their own enrolment under the state law.
From 1 April 2026, salary TDS falls under s.392 of the Income-tax Act, 2025: any person responsible for paying income chargeable under the head "Salaries" must deduct tax at the time of payment. The process: collect employees' investment declarations, project annual taxable salary under the regime each employee has chosen, deduct monthly, deposit within the prescribed time, file the quarterly TDS statement, and issue the salary TDS certificate (Form No. 130 under the Income-tax Rules, 2026). Payments for earlier years remain under s.192 of the Income-tax Act, 1961.
What non-compliance costs
Under the Code, an employer is liable to simple interest at the notified rate from the date any amount became due until it is paid (s.127), and on default in paying PF or ESI contributions the authority may levy damages "not exceeding the amount of arrears" (s.128). Failure to pay contributions is also an offence under s.133. For TDS, interest, disallowance and penalty provisions apply under the Income-tax Act — check the provision applicable to the year of default.
What to do this month
Audit your headcount today, including contract staff — 20 or more brings in EPF, 10 or more brings in ESI. Register on the EPFO and ESIC employer portals if you haven't. Re-run every salary structure against the ₹25,000 EPF ceiling and the s.2(88) 50% test. Register for professional tax in every state where you have employees, and confirm your payroll processing and quarterly TDS workflows are current. If you're already past a threshold, get a professional assessment of your arrears exposure before approaching EPFO. HRA's PF and ESI compliance and TDS compliance services cover this end to end.
I'm CA Harun Raaj. If this affects your company's compliance calendar, reach out.
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See Also
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