EPF. ESI. TDS. Professional tax. India payroll, simplified.
India’s payroll is not a single system – it is a layered network of central and state obligations. It demands a live EPF two-share engine, ESI threshold tracking, TDS progressive slab computation, state-level Professional Tax compliance, and in-country teams with direct authority relationships. Most providers deliver two of these. Mercans delivers all of them – on a single proprietary stack with no intermediaries.
native payroll
vs nearest peer
since inception
- Employer EPF
- 12% (cap INR 15,000 basic + DA)
- Employee EPF
- 12% (cap INR 15,000 basic + DA)
- Employer ESI
- 3.25% (gross ≤ INR 21,000)
- Employee ESI
- 0.75% (gross ≤ INR 21,000)
- EPF Deadline
- 15th of next month
- ESI Deadline
- 15th of next month
- TDS Income Tax
- Progressive 5%–30%
- New Tax Regime
- Default from FY 2023–24
- Professional Tax
- State-level · max INR 2,500/yr
- Gratuity
- 15 days / year (5+ yrs)
- Bonus Eligibility
- Salary ≤ INR 21,000/mo
- Min. Bonus
- 8.33% · max 20%
- LWF
- State-specific · biannual
- Payslip
- Mandatory · itemised
- Payment Channel
- Bank transfer · INR only
Payroll compliance: the details that can’t be missed
India’s regulators operate at federal, state, and establishment level simultaneously. EPFO levies damages on delayed deposits at rates up to 100%. ESIC retroactively enrolls uncovered employees. The Income Tax Department auto-flags TDS shortfalls via TAN reconciliation. State Professional Tax authorities assess independently. None of these failures announce themselves – they accumulate silently until an assessment makes them very visible.
EPF delayed deposit damages up to 100%
EPFO assesses damages at rates from 5% to 100% of arrears based on delay duration. Employers who miss the 15th-of-month deadline face compounding penalties plus interest at 12% p.a.
ESI retroactive enrollment
ESIC can retroactively enroll employees who were excluded due to incorrect wage ceiling application. Back-dated contributions plus interest become immediately payable, with the employer bearing both shares.
TDS short-deduction notice under Section 201
The Income Tax Department issues automatic notices for TDS shortfalls detected during quarterly TAN reconciliation. Interest at 1.5% per month applies from the date the tax was deductible, not the notice date.
Multi-state Professional Tax non-compliance
Professional Tax is governed by individual state acts with different slabs, caps, and due dates. Employers operating across states face penalties from each state authority independently – and most payroll platforms model only one state’s rules.
The three types of providers who struggle with India
Global Aggregator Platforms
Platforms like Deel, Remote, and Rippling operate through a partner network in India — they don’t own the entity, don’t directly manage EPFO filings, and don’t control the multi-state compliance relationship. When state-level Professional Tax rules change, the instruction travels: platform → partner → your payroll. Each handoff introduces delay and interpretation risk.
- ×No direct EPFO relationship — third-party intermediary handles filings
- ×Multi-state Professional Tax compliance typically unsupported or manual
- ×TDS computation often single-regime — no old vs. new tax regime switching
- ×Regulatory updates filtered through partner SLAs, not live
Large Global Payroll Incumbents
ADP, Ceridian, and similar incumbents have India coverage — in name. In practice, their India coverage is often delivered through regional partners or legacy systems that weren’t built for India’s EPF split-contribution architecture, ESI wage ceiling tracking, or the 28-state Professional Tax matrix.
- ×EPF employer share not split into 3.67% EPF + 8.33% EPS correctly
- ×LWF and state-specific deductions typically manual workarounds
- ×Long implementation timelines — India not a core market for some
- ×No unified portal integration for ECR and ESI filings
Local Indian Firms
Local Indian accounting and CA firms know the market — but they can’t scale with you. No payroll technology platform, no HCM integration, no multi-country consolidation, and no data security certifications that multinationals require. Fine for 50 employees in one state. Inadequate at 500 across ten.
- ×No proprietary payroll technology — manual spreadsheet-based processing
- ×No HCM connector — Workday, SAP, Oracle feeds require custom work
- ×No data security certifications (SOC 1/2, ISO 27701, BCR)
- ×No multi-country consolidation — cannot report across India + other APAC entities
The only provider that closes every gap
Mercans is the only India payroll provider that combines a proprietary payroll technology stack, full-time in-country compliance teams, direct authority relationships, and enterprise-grade data security – simultaneously, on one contract, with no intermediaries.
The only engine built for India’s actual payroll architecture
G2N Nova™ is the world’s only API-first gross-to-net payroll engine. It natively models India’s EPF employer split (3.67% EPF + 8.33% EPS), ESI wage ceiling tracking with automatic opt-out, TDS computation under both old and new tax regimes, Professional Tax across all 28 states, and LWF/bonus calculations. This isn’t configuration. It’s engineering.
Full-time India team – not a partner you phone when things break
Mercans employs full-time payroll and compliance professionals in India. They maintain active relationships with EPFO, ESIC, and state Professional Tax authorities – not through a contact directory, but through ongoing regulatory engagement. When the CBDT issues a circular, when EPFO updates the ECR format, when a state revises Professional Tax slabs – we know before it reaches your inbox.
The security posture multinationals require – and India now mandates
India’s Digital Personal Data Protection Act (DPDPA) 2023 requires payroll processors handling employee personal data to maintain documented privacy controls, consent management, and data localisation frameworks. Mercans holds BCR approval, ISO 27701 certification, SOC 1 & 2 certifications, and ISO 27017/27018 – the only payroll provider in APAC with this complete certification stack. Zero security breaches since inception.
Where Mercans wins on every India-specific capability
Each row is an India-specific capability. Each cell shows native coverage as a fill bar – full = native in-platform, half = partial / manual workaround, empty = gap.
India Capability Coverage · 11 dimensions
3.67% EPF + 8.33% EPS
Old + New regime switching
Workday · SAP · Oracle
Every rate. Every cap. Every obligation.
India payroll operates on exact numbers with hard deadlines across central and state authorities. Mercans builds every figure below into G2N Nova™ and monitors them proactively – so you’re never discovering a rate change from a penalty notice.
India · Rate & Compliance Dashboard
Live 2025–26EPF Employer Split – Not a Flat 12%
The employer’s 12% EPF contribution is legally split: 3.67% to the EPF account and 8.33% to the Employees’ Pension Scheme (EPS), with EPS capped at INR 15,000 basic + DA. A compliant India payroll must calculate and report both independently. Mercans’ G2N Nova™ maintains them as separate engines – not a blended rate.
→ Modelled natively in G2N Nova™ESI Wage Ceiling Creates a Binary Threshold
ESI applies to employees earning up to INR 21,000 gross per month. Once an employee crosses the threshold mid-year, they continue coverage for the remainder of the contribution period. New hires above the ceiling are exempt from Day 1. This binary logic requires per-employee tracking, not a blanket rate.
→ Automatic threshold tracking in HR Blizz™DPDPA Compliance Is a Payroll Processor Obligation
India’s Digital Personal Data Protection Act (2023) places explicit obligations on entities that process employee personal data – including payroll providers. Non-compliant processors create direct liability for the employers they serve, with penalties up to INR 250 crore.
→ BCR · ISO 27701 · DPDPA agreements standardNew Tax Regime Is Default – Old Regime Requires Opt-Out
From FY 2023–24, the new tax regime is the default for all employees. Opting for the old regime requires a formal declaration and employer must compute TDS under the chosen regime. Both regimes have different slab structures, exemptions, and deduction eligibility – requiring parallel computation capability.
→ Dual-regime TDS engine live on every India payroll runRun an India payroll. Right here, right now.
Switch workforce type. Move the slider. Every number you see is the same calculation G2N Nova™ runs in production – EPF split logic, ESI threshold tracking, TDS slab computation, and true cost of employment exposed live.
India Payroll Sample · Live
G2N Nova™ engineEight things only India experts know to handle
These are the compliance details that don’t appear in standard payroll setup guides – but appear in every EPFO audit, ESIC inspection, and IT Department notice we’ve encountered in India over 15 years.
EPF Employer Split Is Two Distinct Remittances
The employer’s 12% is not a single deposit. It splits into 3.67% to the EPF account and 8.33% to EPS (capped at INR 15,000 basic + DA). For employees earning above INR 15,000, the EPS portion remains capped while the excess routes entirely to EPF. Treating it as a flat 12% is the most common India EPF error.
ESI Threshold Creates Mid-Year Coverage Lock-In
Employees earning up to INR 21,000 gross are ESI-eligible. If wages cross INR 21,000 mid-contribution period (April or October), coverage continues for the remainder of that period. New hires above the ceiling are exempt from Day 1. This binary yet period-locked logic requires per-employee tracking every pay cycle.
New Tax Regime Is Default – Old Regime Requires Declaration
From FY 2023–24, the new tax regime (with updated slabs and no major deductions) is the default. Employees wishing to continue under the old regime must submit a formal declaration. Employers must compute TDS under the declared regime and cannot switch mid-year without proper documentation.
Professional Tax Varies Across 28 States
Professional Tax is a state-imposed deduction with different slab structures, caps (max INR 2,500/year), and due dates across India’s states. An employer with staff in Maharashtra, Karnataka, and West Bengal faces three different PT calculation matrices. Multi-state employers need parallel state engines, not a single PT rate.
Statutory Bonus Has Ceiling, Floor, and Eligibility Conditions
The Payment of Bonus Act mandates minimum 8.33% (up to 20%) for employees earning up to INR 21,000/month. The calculation base is capped at INR 7,000 or minimum wage, whichever is higher. Employers must pay bonus within 8 months of the accounting year close. Non-payment is a criminal offence.
Gratuity Accrues from Day 1 but Vests at Year 5
Under the Payment of Gratuity Act, gratuity is calculated as 15 days’ wages for each completed year of service, payable upon exit after 5 years (with exceptions for death or disability). The “15 days” uses a 26-day month divisor. Most payroll systems use 30 days – producing incorrect settlements that trigger disputes.
Labour Welfare Fund Is State-Specific and Often Overlooked
Several states levy a Labour Welfare Fund contribution (typically biannual, INR 6–INR 25 per employee per half-year). While the amounts are small, non-compliance triggers disproportionate penalties and blocks establishment registration renewals in states like Maharashtra and Karnataka.
Form 16 Generation Requires Reconciled Quarterly Returns
Form 16 (annual TDS certificate for employees) can only be generated after quarterly 24Q returns are filed and processed by TRACES. Errors in quarterly filings cascade into incorrect Form 16 issuance, creating employee grievances and IT Department scrutiny. The entire chain must be correct – not just the final output.
One workforce. Two entirely different compliance tracks.
The foundational split in India payroll – regular employees on full statutory coverage vs. international workers and contractors on reduced or exempt obligations – is not a configuration toggle. It requires parallel calculation engines, different filing obligations, and different terminal settlement frameworks. Mercans runs both simultaneously on every pay cycle.
Parallel Compliance Engines
EPF registration is mandatory from Day 1. Employer 12% (3.67% EPF + 8.33% EPS), employee 12%, capped at INR 15,000 basic + DA. ECR filing by 15th of following month with EDLI and admin charges.
ESI applies to employees at or below INR 21,000 gross. Employer 3.25%, employee 0.75%. Coverage periods run April–September and October–March. Mid-period wage increases do not remove coverage until the next period.
TDS must be computed monthly under the chosen regime. New regime is default from FY 2023–24. Employers must project annual income, apply slab rates, and distribute TDS evenly across months – with year-end reconciliation.
Statutory bonus and gratuity are accruing liabilities. Bonus (8.33%–20%) for eligible employees and gratuity (15 days/year after 5 years) must be tracked continuously – not calculated only at exit or year-end.
International workers may be EPF-exempt under SSAs. India has Social Security Agreements with select countries. Employees from SSA countries with valid Certificates of Coverage are exempt from EPF. Without proper documentation, EPF applies in full.
TDS on non-residents follows different slabs and treaty rates. Section 195 requires TDS on payments to non-residents at rates determined by the Income Tax Act or applicable DTAA, whichever is more beneficial. Incorrect withholding creates liability for the employer.
Contractor payments require TDS under Section 194C/194J. Resident contractors: 1%–10% TDS depending on nature of service. Non-resident contractors: Section 195 rates apply. Failure to deduct makes the payer liable for the full tax amount plus interest.
Permanent Establishment risk is a payroll dependency. Foreign companies paying salaries to India-based staff risk creating a PE in India, triggering corporate tax obligations. Payroll structure directly affects PE exposure assessment.
Every obligation. Every authority. Mercans owns the calendar.
India compliance runs across EPFO, ESIC, the Income Tax Department, and state authorities on monthly, quarterly, and annual cadences. Mercans’ managed payroll absorbs every filing as standard scope – you don’t track deadlines. We do.
EPF ECR Filing & Remittance
Electronic Challan-cum-Return filed with EPFO for all EPF-enrolled employees. Includes employer and employee shares, EDLI premium, and admin charges. Late filing attracts damages from 5% to 100% of arrears.
ESI Contribution Filing
ESI contributions filed and remitted for employees earning up to INR 21,000 gross. Employer 3.25% + employee 0.75%. ESIC can retroactively enroll missed employees with full back-dated liability.
TDS Challan Deposit
TDS deducted from employee salaries deposited via Challan 281 by the 7th of the following month. Late deposits attract interest at 1.5% per month from the date of deduction.
24Q / 26Q TDS Returns
Quarterly TDS return for salary (24Q) and non-salary (26Q) deductions filed on TRACES. These returns feed Form 16/16A generation and are reconciled against monthly challan deposits. Errors cascade into employee tax certificates.
Form 16 Issuance
Annual TDS certificate issued to each employee after reconciled quarterly returns are processed on TRACES. Required for employees to file individual income tax returns. Late or incorrect Form 16 creates employee grievances and regulatory scrutiny.
Full & Final Settlement
Terminal settlement including earned leave encashment, gratuity (if 5+ years), proportionate bonus, notice period adjustment, and any outstanding loans. Must be processed within specified timelines per state-level Shops & Establishment Acts.
Professional Tax & LWF Remittance
Professional Tax deducted and remitted per state-specific schedules. Labour Welfare Fund contributions (where applicable) typically biannual. Each state maintains independent slabs, due dates, and penalty structures.
Statutory Bonus Payment
Statutory bonus (min 8.33%, max 20%) paid to eligible employees within 8 months of accounting year close. Eligibility: salary up to INR 21,000/month. Calculation base capped at INR 7,000 or minimum wage. Non-payment is a prosecutable offence.
India is one market.
Mercans covers the entire region.
For companies running payroll across multiple Asian markets, complexity multiplies – not adds. Each country runs its own labour authority, social insurance body, and tax regime. Mercans covers all major APAC markets on a single platform with country-specific compliance engines running in parallel.
covered
1 contract
consolidation
APAC
Every filing. Every format. Submission-ready.
Mercans generates the exact file types that EPFO, ESIC, the Income Tax Department, and state authorities expect to receive — not formatted summaries that need reformatting before you can submit them.
