TDS, PF, ESI: Explained for Small Businesses

When you're managing a growing business in India, terms like TDS, PF, and ESI often come up — but many entrepreneurs aren’t sure what they mean or how they impact employees and payroll. Let’s break it down in simple terms.

1. TDS – Tax Deducted at Source

TDS is a form of income tax. When you pay salaries to your employees, you’re required to deduct tax at source based on their taxable income, and deposit it with the government. Failure to do this attracts penalties.

⚠️ TDS deduction rates depend on the employee’s income tax declaration and investment proofs. Your payroll system should handle this dynamically each month.

2. PF – Provident Fund

Provident Fund (PF) is a long-term retirement saving scheme. Both the employer and employee contribute 12% of the basic salary towards the PF account. It’s mandatory for businesses with 20+ employees.

✅ With MMC Payroll, monthly PF calculations and electronic returns are generated automatically and submitted via EPFO portal integrations.

3. ESI – Employee State Insurance

ESI is a social security scheme for employees earning less than ₹21,000/month. It provides medical, maternity, disability, and dependent benefits. The employer contributes 3.25% and the employee 0.75% of wages.

📌 It's important to check ESI eligibility every payroll cycle, as even a small salary hike can change applicability.

4. Compliance Deadlines

• TDS: 7th of every month
• PF: 15th of every month
• ESI: 15th of every month

Missing deadlines can lead to heavy fines, interest penalties, and even legal trouble. Automated reminders and filing through a reliable payroll platform like MMC can save you a lot of stress.

Final Words

Understanding these contributions isn’t just a compliance task — it builds trust with employees and helps you stay organized as you scale. Don’t leave it to manual calculations. Let cloud payroll handle the complexity.

Need help automating compliance? Request a demo today →