EPF, ESI, and TDS represent the core statutory deductions in Indian payroll processing for 2026. HR professionals and payroll teams must master these calculations to ensure compliance, accurate salary slips, and timely deposits under the Employees’ Provident Funds and Miscellaneous Provisions Act, ESI Act, and Income Tax Act.

This guide delivers clear, actionable steps for calculating Employee Provident Fund (EPF), Employee State Insurance (ESI), and Tax Deducted at Source (TDS) on salary in 2026. It covers formulas, examples, compliance checklists, and best practices tailored for HR teams handling monthly payroll in India.

Mastering these ensures you avoid penalties, support employee financial security, and streamline operations. Whether you’re a beginner in HR or managing multi-state payroll, accurate calculations protect both employers and employees.

Understanding EPF Calculation in 2026

The Employees’ Provident Fund (EPF) is a mandatory retirement savings scheme. Both employees and employers contribute to build a corpus for post-retirement needs.

EPF Contribution Rates 2026:

• Employee: 12% of Basic Salary + Dearness Allowance (DA).
• Employer: 12% total — split as 8.33% to Employees’ Pension Scheme (EPS, capped at ₹15,000 wage) and 3.67% to EPF. Additional 0.5% for EDLI.

EPF Wage Ceiling: ₹15,000 per month for EPS calculations. Contributions apply on actual Basic + DA if higher, with caps for pension portions.

Step-by-Step EPF Calculation:

1. Identify Basic Salary + DA (typically 40-50% of CTC).
2. Calculate Employee Contribution: 12% of eligible wages.
3. Calculate Employer Contribution: 12% split.
4. Deposit combined amount by the 15th of the following month.

Example: Employee with ₹50,000 Basic + DA.

• Employee EPF: ₹6,000 (12%).
• Employer: ₹6,000 total (₹1,250 to EPS on ₹15,000 cap + ₹550 to EPF + rest adjustments).
• Total EPF deposit: ~₹12,000 (plus EDLI).

Voluntary Provident Fund (VPF) allows extra employee contributions up to certain limits for higher savings.

ESI Calculation Formula India 2026

Employee State Insurance (ESI) provides medical, sickness, maternity, and disability benefits. It applies to employees earning up to the eligibility limit.

ESI Eligibility Salary Limit 2026: ₹21,000 per month (higher for persons with disabilities in some cases). Establishments with 10+ employees must register.

ESIC Contribution Rates 2026:

• Employee: 0.75% of gross wages.
• Employer: 3.25% of gross wages.
• Total: 4%.

Step-by-Step ESI Deduction:

1. Check if monthly gross wages ≤ ₹21,000.
2. Calculate Employee Deduction: 0.75%.
3. Add Employer Contribution: 3.25%.
4. Deposit by 15th of next month.

Example: ₹18,000 gross wages employee.

• Employee ESI: ₹135.
• Employer: ₹585.
• Total: ₹720.

ESI benefits include cashless medical care and wage compensation during illness.

TDS on Salary Calculation 2026 Under New Tax Regime

TDS on salary (under Section 192) is income tax deducted by the employer before salary disbursement.

The new tax regime is default in 2026, with updated slabs and a ₹75,000 standard deduction.

New Tax Regime Slabs (FY 2026-27 approximate):

• Up to ₹4 lakh: Nil
• ₹4-8 lakh: 5%
• ₹8-12 lakh: 10%
• Higher slabs progressively up to 30%.

Step-by-Step TDS Calculation:

1. Compute Gross Salary (Basic + Allowances + Perks).
2. Subtract exemptions/deductions (standard deduction, employer NPS, etc.).
3. Apply tax slabs for annual projected income.
4. Divide annual tax by months for monthly TDS.
5. Issue Form 16 annually.

Example: ₹12 lakh annual gross (new regime). After ₹75,000 standard deduction, calculate slab tax and deduct monthly.

Payroll Compliance India 2026: Checklist and Best Practices

HR teams must follow a robust HR payroll compliance checklist:

• Maintain accurate salary structure (Basic 40-50%, HRA, special allowances).
• Use UAN for EPF tracking.
• File returns timely (Form 24Q for TDS).
• Reconcile monthly with ECR for PF/ESI.

Monthly Payroll Calculation India Deadlines (2026):

• PF & ESI: 15th of next month.
• TDS Payment: 7th of next month.

Decision Table: Choosing Payroll Approach

Scenario	Manual Calculation	Payroll Software	Best For
Small team (<20)	Feasible	Recommended	Cost-conscious startups
Multi-state operations	High error risk	Essential	Enterprises
High compliance needs	Risky	Automated	All HR teams

Best for Whom:

• Small Businesses: Start with basic Excel + free tools; upgrade to software.
• Mid-Large HR Teams: Adopt automation for accuracy.
• Freelance Payroll Executives: Focus on certifications for credibility.

Clear Recommendation: Invest in payroll automation to reduce errors by up to 90% and ensure Labour Code payroll rules compliance.

Salary Structure Calculation India and Deductions Explained

A typical salary slip includes: Gross Salary → Statutory Deductions (EPF, ESI, TDS, PT) → Net Salary.

Gross vs Net Salary: Gross is total before deductions; Net is take-home pay.

Statutory Deductions in Salary: EPF, ESI, TDS, Professional Tax (state-specific).

Labour Codes Impact: The new codes emphasize timely deposits and digital records for better transparency.

Payroll Processing Guide for HR: Verify employee data, calculate deductions, generate slips, deposit, and file returns.

Best for Whom Section:

New HR professionals benefit from structured learning. Experienced teams gain from upskilling on 2026 updates.

SalaryBox Academy offers bite-sized lessons on payroll topics through its HR payroll certification course. With industry-recognized certifications and a community of 10,000+ HR professionals, it helps build practical skills efficiently .

Must-Haves for HR Payroll Success in 2026

• Updated knowledge of EPF/ESI/TDS rules.
• Payroll software for automation.
• SalaryBox Academy certifications for validated expertise.
• Compliance calendar and audit-ready records.

Master essential HR skills with bite-sized lessons, industry-recognized certifications, and a thriving community of 10,000+ HR professionals at SalaryBox Academy.

Frequently Asked Questions (FAQs)

1. How is EPF calculated on salary in India in 2026?

EPF calculation uses 12% of Basic + DA for the employee. Employer matches 12%, with 8.33% (capped at ₹15,000) to EPS and 3.67% to EPF. Example: ₹40,000 Basic yields ₹4,800 employee contribution. Deposits occur via UAN-linked ECR by the 15th. Automation tools minimize errors in monthly payroll. Understanding this formula prevents under-deduction and ensures retirement security.

2. What is the EPF contribution rate for employees and employers?

Both contribute 12% in most cases (10% in select industries). Employee share fully goes to EPF. Employer splits for EPS/EDLI. Rates support long-term savings while capping pension portions for equity. Voluntary contributions boost corpus. HR must track via EPFO portal for compliance.

3. How do you calculate ESI deductions from salary?

Apply 0.75% employee + 3.25% employer on gross wages up to ₹21,000 limit. Total 4%. Exempt low daily wages from employee share. Benefits justify the cost through medical coverage. Calculate monthly and deposit timely.

4. What is the salary limit for ESI eligibility in India?

₹21,000 monthly gross wages (higher for disabled persons). Applies to establishments with 10+ employees. Exceeding the limit removes ESI applicability but may require alternative insurance. Check at joining and annually. (≈60 words)

5. How is TDS calculated on salary under the new tax regime?

Project annual income, apply 2026 slabs after standard deduction (₹75,000), divide tax for monthly deduction under Section 192. Reconcile at year-end via Form 16. New regime simplifies with fewer exemptions.

6. What is the difference between gross salary and net salary?

Gross is full CTC components before any deductions. Net is take-home after EPF, ESI, TDS, PT, etc. Understanding helps employees plan finances and HR communicate transparently in salary slips.

7. Is EPF mandatory for all employees?

Yes, for establishments with 20+ employees and wages below ceiling (with exceptions). Provides social security. Non-compliance attracts damages.

8. Can employees opt out of EPF?

Generally no for covered employees, but international workers or specific cases may vary. VPF is an optional addition.

9. What are the monthly deadlines for PF, ESI and TDS deposits?

PF & ESI: 15th of next month. TDS: 7th of next month. Missing triggers interest/penalties. Use compliance calendars. 

10. What happens if an employer misses PF or ESI filing?

Damages (5-25%+), interest, prosecution possible. Affects employee benefits and company reputation. Timely filing is critical.

11. What is Form 16 and why is it important?

Annual TDS certificate issued by employer detailing salary and tax deducted. Essential for ITR filing and claiming refunds.

12. What is Form 24Q in payroll compliance?

Quarterly TDS return for salary deductions. Ensures government tracks tax collection accurately.

13. What payroll records should HR teams maintain?

Salary registers, deduction proofs, Form 16/24Q, ECR filings, attendance records for 5-8 years.

14. How does payroll software calculate PF, ESI and TDS automatically?

It applies the latest rates, slabs, caps, and generates compliant slips/reports. Reduces manual errors significantly.

15. What skills are required for payroll and compliance jobs in India?

Knowledge of labour laws, tax slabs, calculation accuracy, software proficiency, attention to detail. 

16. How can beginners learn payroll management online?

Through structured platforms offering step-by-step modules on EPF/ESI/TDS with practical examples. 

17. Which free payroll certification course is best for HR professionals?

Look for accessible, updated courses covering 2026 rules with community support, like those at SalaryBox Academy.

18. How do Labour Codes affect payroll calculations?

They standardize definitions, emphasize digital compliance, and consolidate laws for easier multi-state handling.

19. What are statutory deductions in salary?

EPF, ESI, TDS, Professional Tax — mandatory under respective acts. 

20. How can HR professionals avoid payroll compliance penalties?

Use automation, maintain checklists, stay updated via certifications, and file deposits before deadlines. Regular audits help.