1 October 2026 · 2 min read
PF, ESI and professional tax: how payroll deductions actually work
Why statutory deductions are not simple percentages, and how wage ceilings, applicability limits and state slabs change the numbers.
Many payroll tools treat provident fund, ESI and professional tax as a percentage of salary. The real rules are different, and the gap shows up most on higher salaries.
Provident fund (PF)
PF is usually calculated as 12% of basic pay, but on a wage capped at a ceiling (currently ₹15,000 a month). On a basic of ₹1,84,000 the contribution is therefore ₹1,800, not 12% of the full amount.
Employee State Insurance (ESI)
ESI applies only up to a gross wage limit (currently ₹21,000 a month). Above it an employee is outside the scheme entirely. It is not a capped contribution, it simply does not apply.
Professional tax
Professional tax is set by each state. It is a slab table: the amount depends on which band the monthly wage falls in. Karnataka, Maharashtra and other states have different slabs, so a multi-state company must configure each.
Income tax (TDS)
TDS on salary is a projection: estimate the year's income, work out the year's tax, subtract what has been deducted, and spread the rest across the remaining months. A raise or a new investment declaration changes every remaining payslip.
Practical checklist
- Review ceilings and slabs before each financial year.
- Keep issued payslips unchanged when rules change.
- Check payroll before payday, not after.
These figures change, so confirm current limits with your auditor or the relevant authority. Book a demo to see how Integritas HRMS applies these rules.