{"id":13718,"date":"2026-06-15T17:22:22","date_gmt":"2026-06-15T11:52:22","guid":{"rendered":"https:\/\/www.tankhapay.com\/blog\/?p=13718"},"modified":"2026-06-15T17:22:22","modified_gmt":"2026-06-15T11:52:22","slug":"payroll-compliance-penalties","status":"publish","type":"post","link":"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/","title":{"rendered":"What Are the Payroll Compliance Penalties in India?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_78 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Key_Takeaways\" >Key Takeaways<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Why_Payroll_Compliance_Failures_Are_a_Board-Level_Risk_in_2026\" >Why Payroll Compliance Failures Are a Board-Level Risk in 2026?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#What_Is_Indias_Payroll_Compliance_Framework\" >What Is India&#8217;s Payroll Compliance Framework?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Core_Statutory_Components\" >Core Statutory Components<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#The_7_Major_Payroll_Compliance_Penalties_in_India\" >The 7 Major Payroll Compliance Penalties in India\u00a0<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Penalty_1_%E2%80%93_Employees_Provident_Fund_EPF_Act_1952\" >Penalty 1 &#8211; Employees&#8217; Provident Fund (EPF) Act, 1952<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Penalty_2_%E2%80%93_Employees_State_Insurance_ESI_Act_1948\" >Penalty 2 &#8211; Employees&#8217; State Insurance (ESI) Act, 1948<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Penalty_3_%E2%80%93_Income_Tax_Act_1961_TDS_on_Salaries_%E2%80%93_Section_192\" >Penalty 3 &#8211; Income Tax Act, 1961 (TDS on Salaries &#8211; Section 192)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Penalty_4_%E2%80%93_Payment_of_Wages_Act_1936_Code_on_Wages_2019\" >Penalty 4 &#8211; Payment of Wages Act, 1936 &amp; Code on Wages, 2019<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Penalty_5_%E2%80%93_Payment_of_Gratuity_Act_1972\" >Penalty 5 &#8211; Payment of Gratuity Act, 1972<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Penalty_6_%E2%80%93_Professional_Tax_State-Specific\" >Penalty 6 &#8211; Professional Tax (State-Specific)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Penalty_7_%E2%80%93_Labour_Welfare_Fund_LWF_Defaults\" >Penalty 7 &#8211; Labour Welfare Fund (LWF) Defaults<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Why_Is_Payroll_Compliance_Failure_Exponentially_Costly\" >Why Is Payroll Compliance Failure Exponentially Costly?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#New_Compliance_Requirements_Under_the_4_Labour_Codes\" >New Compliance Requirements Under the 4 Labour Codes\u00a0<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Key_New_Compliance_Requirements_Employers_Must_Prepare_For\" >Key New Compliance Requirements Employers Must Prepare For:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#What_Best-in-Class_Payroll_Compliance_Looks_Like\" >What Best-in-Class Payroll Compliance Looks Like?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#What_Are_the_Biggest_Payroll_Compliance_Risks_for_Your_Business\" >What Are the Biggest Payroll Compliance Risks for Your Business?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#How_Can_Payroll_Compliance_Failures_Impact_Directors_and_Senior_Executives\" >How Can Payroll Compliance Failures Impact Directors and Senior Executives?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Red_Flags_That_Signal_Systemic_Payroll_Compliance_Risk\" >Red Flags That Signal Systemic Payroll Compliance Risk<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#FAQ\" >FAQ<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#What_happens_if_an_employer_fails_to_deposit_PF_contributions_on_time_in_India\" >What happens if an employer fails to deposit PF contributions on time in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Can_an_employer_be_imprisoned_for_payroll_non-compliance_in_India\" >Can an employer be imprisoned for payroll non-compliance in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Does_the_new_Code_on_Wages_apply_across_all_of_India_in_2026\" >Does the new Code on Wages apply across all of India in 2026?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#What_is_the_penalty_for_not_filing_TDS_returns_on_time\" >What is the penalty for not filing TDS returns on time?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-25\" href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-penalties\/#Is_Professional_Tax_applicable_to_all_Indian_employees\" >Is Professional Tax applicable to all Indian employees?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<div style=\"background-color: #dbeafe; padding: 20px; border-radius: 10px; margin: 20px 0;\">\n<h2><span class=\"ez-toc-section\" id=\"Key_Takeaways\"><\/span><b>Key Takeaways<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Audit your wage definition<\/b><span style=\"font-weight: 400;\"> against the Code on Wages interpretation; the most optimised CTC structures may face upward revision in PF\/ESI liability.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Map your multi-state compliance obligations<\/b><span style=\"font-weight: 400;\"> &#8211; PT and LWF registrations are often the first casualties of rapid geographic expansion.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Review contractor classification<\/b><span style=\"font-weight: 400;\"> rigorously &#8211; the ESIC and EPF coverage expansion under the new codes make this a significant risk area.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Establish board-level visibility<\/b><span style=\"font-weight: 400;\"> on payroll compliance status, not just HR-level reporting.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Invest in a compliance calendar system<\/b><span style=\"font-weight: 400;\"> &#8211; system-driven deadline tracking reduces the single largest cause of default, which is missed timelines.<\/span><\/li>\n<\/ol>\n<\/div>\n<p><span style=\"font-weight: 400;\">Payroll compliance penalties in India usually take center stage when employers fail to comply with statutory obligations such as EPF contributions, ESI payments, TDS deductions, gratuity payments, professional tax filings, or wage payment rules. Penalties may include interest charges, financial damages, prosecution, and, in certain cases, imprisonment of responsible company officers.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_Payroll_Compliance_Failures_Are_a_Board-Level_Risk_in_2026\"><\/span><b>Why Payroll Compliance Failures Are a Board-Level Risk in 2026?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">India&#8217;s regulatory environment around employment and wages has never been more consequential. With the Central Government&#8217;s push to consolidate 40+ labour laws into 4 Labour Codes, i.e., the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety Code (2020). Currently, the payroll compliance framework in India is undergoing the most significant structural change in seven decades.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But no complexity has disappeared. States are adopting these codes at different rates. New requirements for compliance are being added to legacy obligations that remain in effect until notification at the state level is complete. This is not a back-office issue for CEOs and CHROs \u2013 it\u2019s a business continuity, reputational, and financial risk.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Think of the ripple effect of a single payroll compliance failure:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Immediate monetary penalties on contributions, wages, or reports<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Compound interest and damages accumulating month over month<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Liability of directors and designated officers for criminal acts<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Regulatory scrutiny leading to wider audits of all statutory obligations<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Erosion of employee trust impacts retention and employer brand<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"What_Is_Indias_Payroll_Compliance_Framework\"><\/span><b>What Is India&#8217;s Payroll Compliance Framework?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">India&#8217;s payroll statutory framework involves multi-statute, multi-agency compliance. This means that employers have to be compliant with the requirements of federal statutes, as well as state-level modifications and industry-level statutes.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Core_Statutory_Components\"><\/span><b>Core Statutory Components<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone wp-image-13735 size-full\" src=\"https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components.webp\" alt=\"\" width=\"1536\" height=\"1024\" srcset=\"https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components.webp 1536w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components-300x200.webp 300w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components-1024x683.webp 1024w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components-150x100.webp 150w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components-768x512.webp 768w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components-878x585.webp 878w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/statutory-components-870x580.webp 870w\" sizes=\"(max-width: 1536px) 100vw, 1536px\" \/><\/p>\n<p><b style=\"font-size: 16px;\">1. Wages &amp; Minimum Compensation<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Payment of Wages Act, 1936<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Minimum Wages Act, 1948<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Code on Wages, 2019 (when notified by states)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Payment of Bonus Act, 1965<\/span><\/li>\n<\/ul>\n<p><b>2. Social Security Contributions<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Employees&#8217; Provident Fund &amp; Miscellaneous Provisions Act, 1952 (EPF)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Employees&#8217; State Insurance Act, 1948 (ESI)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Gratuity Act, 1972<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Code on Social Security, 2020 (progressive rollout)<\/span><\/li>\n<\/ul>\n<p><b>3. Tax Deductions at Source<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Income Tax Act, 1961 &#8211; TDS on salaries (Section 192)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Professional Tax (levied by state governments)<\/span><\/li>\n<\/ul>\n<p><b>4. Leaves, Benefits &amp; Deductions<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Maternity Benefit Act, 1961<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Shops and Establishments Acts (state-specific)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Labour Welfare Fund (state-level applicability)<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"The_7_Major_Payroll_Compliance_Penalties_in_India\"><\/span><b>The 7 Major Payroll Compliance Penalties in India\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Major payroll compliance penalties in India need to be understood thoroughly. Below is the structured format of the same.<\/span><\/p>\n<p><img decoding=\"async\" class=\"alignnone wp-image-13731 size-full\" src=\"https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india-.webp\" alt=\"\" width=\"864\" height=\"1821\" srcset=\"https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india-.webp 864w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india--142x300.webp 142w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india--486x1024.webp 486w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india--71x150.webp 71w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india--768x1619.webp 768w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india--729x1536.webp 729w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india--332x700.webp 332w, https:\/\/www.tankhapay.com\/blog\/wp-content\/uploads\/2026\/06\/major-payroll-compliance-penalties-in-india--285x600.webp 285w\" sizes=\"(max-width: 864px) 100vw, 864px\" \/><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Penalty_1_%E2%80%93_Employees_Provident_Fund_EPF_Act_1952\"><\/span><b>Penalty 1 &#8211; Employees&#8217; Provident Fund (EPF) Act, 1952<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">EPF non-compliance is among the most common and costly exposures for Indian employers.<\/span><\/p>\n<p><b>Default in deposit of contributions:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Damages under Section 14B<\/b><b>:<\/b><span style=\"font-weight: 400;\"> EPFO revised the <a href=\"https:\/\/ascent-hr.com\/notification\/reduction-of-penal-damages-under-epf-eps-and-edli-payable-by-employer\/\">rate of damages<\/a> payable by employers for delayed remittance of EPF, EPS, and EDLI contributions. Since June 2024, damages have been generally levied at 1% per month of the arrears amount, subject to applicable EPFO provisions and notifications. In addition to damages, employers remain liable to pay interest under Section 7Q on delayed contributions.<\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Up to 2 months: 5%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">2\u20134 months: 10%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">4\u20136 months: 15%<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Beyond 6 months: 25%<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><b>Interest under Section 7Q:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Simple interest at<\/span><span style=\"font-weight: 400;\"> 12% per annum<\/span><span style=\"font-weight: 400;\"> on delayed contributions.<\/span><\/li>\n<\/ul>\n<p><b>Criminal Penalty under Section 14:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Intentional false filing or any violations can lead to punishable imprisonment up to 3 years, plus a fine up to \u20b910,000 (for the first offense) and up to 5 years &amp; \u20b925,000 for repeated defaults.<\/span><\/li>\n<\/ul>\n<p><b>EDLI (Employees&#8217; Deposit Linked Insurance) default:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Treated equivalently to EPF default for penalty purposes.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Under the EPF Act, the employer bears 100% responsibility for both the employer and employee shares in case of non-deposit. Courts have consistently held that deducting but not depositing employee contributions is treated as a more serious offense.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Penalty_2_%E2%80%93_Employees_State_Insurance_ESI_Act_1948\"><\/span><b>Penalty 2 &#8211; Employees&#8217; State Insurance (ESI) Act, 1948<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>Delayed or non-payment of contributions:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Simple interest at 12% per annum on outstanding amounts.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Damages under Section 85B: Up to 25% of arrears (discretion of ESIC authorities).<\/span><\/li>\n<\/ul>\n<p><b>Criminal liability under Section 85:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Failure to deposit payments:<\/span><a href=\"https:\/\/indiankanoon.org\/doc\/452262\/\"><span style=\"font-weight: 400;\"> Fines up to \u20b95,000<\/span><\/a><span style=\"font-weight: 400;\"> and continued failure to make payments charges up to \u20b925 per day as a continuing default fine.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Obstructing an inspector or making a false entry: Imprisonment for up to 2 years and a fine.<\/span><\/li>\n<\/ul>\n<p><b>Coverage threshold (2026):<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Establishments with 10 or more employees and wages up to \u20b921,000\/month (\u20b925,000 for persons with disabilities).<\/span><\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Penalty_3_%E2%80%93_Income_Tax_Act_1961_TDS_on_Salaries_%E2%80%93_Section_192\"><\/span><b>Penalty 3 &#8211; Income Tax Act, 1961 (TDS on Salaries &#8211; Section 192)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">TDS default under payroll is governed by multiple provisions of the Income Tax Act:<\/span><\/p>\n<div class=\"table-responsive\">\n<table class=\"table-class\">\n<tbody>\n<tr>\n<th><b> Default Type<\/b><\/th>\n<th><b>Penalty Provision<\/b><\/th>\n<th><b>Consequence<\/b><\/th>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Non-deduction of TDS<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Section 201<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Employer treated as &#8220;assessee in default&#8221;; liable for the full tax + interest<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Late deduction<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Section 201(1A)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Interest @ 1% per month from date of payment to date of deduction<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Late deposit after deduction<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Section 201(1A)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Interest @ 1.5% per month from date of deduction to actual deposit<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Non-filing\/late filing of TDS returns<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Section 234E<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9200 per day until return is filed (subject to TDS amount)<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Incorrect TDS return<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Section 271H<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Penalty \u20b910,000 to \u20b91,00,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Non-issuance of Form 16<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Section 272A<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b9100 per day per employee<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><span style=\"font-weight: 400;\">The Income Tax Department&#8217;s centralised processing of TDS statements means discrepancies between Form 26AS and employer filings are automatically flagged &#8211; making clean payroll data a first line of defense.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Penalty_4_%E2%80%93_Payment_of_Wages_Act_1936_Code_on_Wages_2019\"><\/span><b>Penalty 4 &#8211; Payment of Wages Act, 1936 &amp; Code on Wages, 2019<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>Classic Act violations:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Unauthorised deductions or delayed wage payment: Fine up to <\/span><b>\u20b93,750 per offense<\/b><span style=\"font-weight: 400;\"> (revised under the Payment of Wages (Amendment) Act, 2017).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Repeat violations: Fine up to <\/span><b>\u20b97,500<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<p><b>Under the Code on Wages (where notified):<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Late payment of wages: Fine up to <\/span><b>\u20b950,000<\/b><span style=\"font-weight: 400;\"> for a first offense.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Repeat offenses: Imprisonment up to <\/span><b>3 months + fine up to \u20b9100,000.<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The Code on Wages also introduces the concept of <\/span><b>a floor wage;<\/b><span style=\"font-weight: 400;\"> it is a national minimum below which no state minimum wage can be set. Non-compliance with minimum wage obligations triggers both financial and criminal liability.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Penalty_5_%E2%80%93_Payment_of_Gratuity_Act_1972\"><\/span><b>Penalty 5 &#8211; Payment of Gratuity Act, 1972<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>Employer defaults:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Failure to pay gratuity on time after it becomes payable: Simple interest at the applicable rate from the due date.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Non-payment of gratuity: Under Section 9 of the <a href=\"https:\/\/labour.delhi.gov.in\/labour\/payment-gratuity-act-1972\">Payment of Gratuity Act<\/a>, employers who fail to comply with the Act may face imprisonment, fines, or both.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The offense relates specifically to non-payment of gratuity, the employer may be punished with imprisonment of not less than <\/span><span style=\"font-weight: 400;\">6 months<\/span><span style=\"font-weight: 400;\"> and up to 2 years, unless the court records reasons for imposing a lesser punishment. Interest may also become payable on delayed gratuity payments.<\/span><\/li>\n<\/ul>\n<p><b>Critical trigger:<\/b> <a href=\"https:\/\/www.tankhapay.com\/blog\/gratuity\/\"><span style=\"font-weight: 400;\">Gra<\/span><span style=\"font-weight: 400;\">tuity<\/span><\/a><span style=\"font-weight: 400;\"> is paid after 5 years of continuous service with the same employer. However, some court decisions have ruled that 4 years and 240 days of continuous service are sufficient in some circumstances, but employers should seek legal advice before relying on this interpretation, as its applicability depends on the facts and the judicial precedent.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Penalty_6_%E2%80%93_Professional_Tax_State-Specific\"><\/span><b>Penalty 6 &#8211; Professional Tax (State-Specific)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Professional Tax is a state-level collection of taxes applicable in approximately <\/span><b>21 states and UTs,<\/b><span style=\"font-weight: 400;\"> including Maharashtra, Karnataka, West Bengal, Tamil Nadu, Andhra Pradesh, Telangana, Gujarat, and others.<\/span><\/p>\n<p><b>Non-compliance consequences (illustrative \u2013 vary by state):<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Maharashtra: Have a penalty up to <\/span><b>3 times the tax dues, plus <\/b><span style=\"font-weight: 400;\">interest at <\/span><b>1.25% per month<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Karnataka: Impose a penalty of <\/span><b>10% of unpaid tax<\/b><span style=\"font-weight: 400;\"> per annum plus interest at <\/span><b>1.5% per month<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Failure to deduct from employees and deposit: Employer bears full liability.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Multi-state employers must maintain <\/span><b>state-wise professional tax registrations<\/b><span style=\"font-weight: 400;\"> and adhere to separate filing calendars for each state.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Penalty_7_%E2%80%93_Labour_Welfare_Fund_LWF_Defaults\"><\/span><b>Penalty 7 &#8211; Labour Welfare Fund (LWF) Defaults<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The Labour Welfare Fund, or LWF, applies in <\/span><b>16 different Indian states<\/b><span style=\"font-weight: 400;\">, with contribution amounts, frequencies (monthly\/half-yearly\/annual), and penalties varying significantly.<\/span><\/p>\n<p><b>Common penalty structure:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Late filing: Simple interest along with a penalty (ranging between 5 and 5\u201325% based on the state).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Non-registration: An additional penalty for not registering while operating.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Why_Is_Payroll_Compliance_Failure_Exponentially_Costly\"><\/span><b>Why Is Payroll Compliance Failure Exponentially Costly?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A key insight that C-suite leaders must incorporate: the major payroll compliance penalty in India is not a one-time cost. They compound.<\/span><\/p>\n<p><b>Illustrative Scenario (100-employee company, 6 months of EPF default)<\/b><\/p>\n<div class=\"table-responsive\">\n<table class=\"table-class\">\n<tbody>\n<tr>\n<th><b>Component<\/b><\/th>\n<th><b>Calculation<\/b><\/th>\n<th><b>Amount<\/b><\/th>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Total EPF dues (arrears)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b95,00,000<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b95,00,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Damages @ 25% (&gt;6 months)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">25% of \u20b95,00,000<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b91,25,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Interest @ 12% p.a. (6 months)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b95,00,000 \u00d7 6%<\/span><\/td>\n<td><span style=\"font-weight: 400;\">\u20b930,000<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Total liability<\/span><\/td>\n<td><span style=\"font-weight: 400;\">&#8212;<\/span><\/td>\n<td><b>\u20b96,55,000<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><span style=\"font-weight: 400;\">The above-discussed components don&#8217;t include legal costs, potential criminal charges against board members, or reputation-related issues when raising funds, conducting due diligence for M&amp;A transactions, or pursuing government tenders.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"New_Compliance_Requirements_Under_the_4_Labour_Codes\"><\/span><b>New Compliance Requirements Under the 4 Labour Codes\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">India&#8217;s shift to the <\/span><b>4 Labour Codes is one of the<\/b><span style=\"font-weight: 400;\"> defining regulatory developments of this era. As of mid-2026:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Central rules<\/b><span style=\"font-weight: 400;\"> have been notified for all 4 codes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Employers working across different Indian states should continue to monitor state-specific implementation and <a href=\"https:\/\/www.tankhapay.com\/blog\/payroll-compliance-checklist\/\">payroll compliance requirements in India<\/a> because operational readiness and state-level rule adoption may continue to change.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Legacy acts continue to apply<\/b><span style=\"font-weight: 400;\"> in states yet to notify.<\/span><\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Key_New_Compliance_Requirements_Employers_Must_Prepare_For\"><\/span><b>Key New Compliance Requirements Employers Must Prepare For:<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ol>\n<li><b> Unified Definition of &#8220;Wages&#8221; (Code on Wages)<\/b><span style=\"font-weight: 400;\"> The Code introduces a definition of wages where exclusions such as HRA, conveyance, and other allowances do not exceed 50% of the total compensation. This will affect the calculation of PF contributions, since some companies may have been organised in a way to minimise PF contributions.<\/span><\/li>\n<li><b> Expanded Gratuity Coverage (Social Security Code)<\/b><span style=\"font-weight: 400;\"> Applicability is extended to fixed-term employees on a pro-rata basis, and there\u2019s no minimum tenure threshold for FTEs.<\/span><\/li>\n<li><b> ESIC Expansion<\/b><span style=\"font-weight: 400;\"> Social Security Code enables ESIC coverage to be extended to all districts and potentially to gig and platform workers, which helps in creating new payroll compliance obligations for companies relying on a contract\/gig workforce.<\/span><\/li>\n<li><b> Changed Calculation Basis for PF<\/b><span style=\"font-weight: 400;\"> Under the Code on Social Security, contributions must be calculated on the new wage definition, removing the engineering common exemption under legacy structures.<\/span><\/li>\n<li><b> Compliance Return Unification<\/b><span style=\"font-weight: 400;\"> A single combined annual return is envisioned under the <a href=\"https:\/\/www.tankhapay.com\/blog\/labour-codes\/\">Labour Codes<\/a> &#8211; but until states fully notify, employers must continue dual compliance.<\/span><\/li>\n<\/ol>\n<p><b><i>In Brief: <\/i><\/b><i><span style=\"font-weight: 400;\">What are the new payroll compliance requirements under India&#8217;s Labour Codes?<\/span><\/i><span style=\"font-weight: 400;\">\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Major changes incorporate a single definition of wages that impacts PF\/ESI calculation, pro-rata gratuity for contractual or temporary employees, expanded ESIC coverage, and a combined annual return filing. But the implementation of these new compliances can vary by state as of 2026<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_Best-in-Class_Payroll_Compliance_Looks_Like\"><\/span><b>What Best-in-Class Payroll Compliance Looks Like?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Here is how CXOs and CHROs can assess the maturity level of their payroll compliance process:<\/span><\/p>\n<p><b>Monthly Payroll Compliance Checklist<\/b><\/p>\n<p><b>Pre-Payroll (by 20th of month):<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Check employee entry, exit, and changes in payroll system<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Compare attendance, leaves, and overtime details<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">[Confirm minimum wages applicable state-wise\/categorically<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Check if tax deduction calculation is working as per the annual salary projections<\/span><\/li>\n<\/ul>\n<p><b>Processing:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Do gross-to-net calculations with all mandatory deductions<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Create EPF ECR (Electronic Challan cum Return)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Create ESI challan<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Calculate Professional Tax based on respective slabs of individual states<\/span><\/li>\n<\/ul>\n<p><b>Post-Payroll (Deposit Deadlines):<\/b><\/p>\n<div class=\"table-responsive\">\n<table class=\"table-class\">\n<tbody>\n<tr>\n<th><b>Statutory<\/b><\/th>\n<th><b>Deposit Deadline<\/b><\/th>\n<th><b>Filing Deadline<\/b><\/th>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">EPF (employer + employee)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">15th of the following month<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Monthly ECR<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">ESI<\/span><\/td>\n<td><span style=\"font-weight: 400;\">21st of the following month<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Half-yearly return (May 11, Nov 11)<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">TDS (non-government)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">7th of the following month (Mar: 30th April)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Quarterly &#8211; Q1: Jul 31, Q2: Oct 31, Q3: Jan 31, Q4: May 31<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Professional Tax<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Varies by state<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Monthly\/quarterly\/annual<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Labour Welfare Fund<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Varies by state<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Half-yearly\/annual<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_Are_the_Biggest_Payroll_Compliance_Risks_for_Your_Business\"><\/span><b>What Are the Biggest Payroll Compliance Risks for Your Business?\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Different business profiles face different risk concentrations in India&#8217;s payroll compliance framework:<\/span><\/p>\n<div class=\"table-responsive\">\n<table class=\"table-class\">\n<tbody>\n<tr>\n<th><b>Business type<\/b><\/th>\n<th><b>Highest Risk Areas<\/b><\/th>\n<th><b>Why<\/b><\/th>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Startup (&lt; 50 employees)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">TDS defaults, PF registration delays<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Lean finance teams, rapid headcount growth<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">IT\/ITeS (&gt; 200 employees)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Wage definition, PF computation<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Complex CTC structures; variable pay<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Manufacturing<\/span><\/td>\n<td><span style=\"font-weight: 400;\">ESI, Minimum Wages, LWF<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Blue-collar workforce; multi-shift payroll<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Multi-state employer<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Professional Tax, LWF<\/span><\/td>\n<td><span style=\"font-weight: 400;\">State-specific rules; decentralised HR<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">A company with gig workforce<\/span><\/td>\n<td><span style=\"font-weight: 400;\">ESI (new), Social Security Code<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Expanding scope under new Codes<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">MNC India subsidiary<\/span><\/td>\n<td><span style=\"font-weight: 400;\">TDS, FEMA interaction<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Expat payroll; equity-linked compensation<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><em><strong>Also Read:<\/strong><\/em> <a href=\"https:\/\/www.tankhapay.com\/blog\/multi-country-payroll\/\">What is Multi-Country Payroll? Solutions &amp; Compliance Tips<\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_Can_Payroll_Compliance_Failures_Impact_Directors_and_Senior_Executives\"><\/span><b>How Can Payroll Compliance Failures Impact Directors and Senior Executives?\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">One aspect significantly underweighted in boardroom discussions is <\/span><b>personal liability<\/b><span style=\"font-weight: 400;\">. Most payroll statutes in India have provisions that pierce the corporate veil:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>EPF Act, Section 14A:<\/b><span style=\"font-weight: 400;\"> Where an employer is a company, every person responsible for the conduct of the business at the time of the default can be held liable, including directors and designated HR\/finance heads.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>ESI Act, Section 85:<\/b><span style=\"font-weight: 400;\"> Similarly imposes personal criminal liability on persons in charge.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Income Tax Act, Section 278B:<\/b><span style=\"font-weight: 400;\"> Officers in charge of the company are deemed personally guilty for TDS offenses unless they prove due diligence.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This means that non-compliance is not just a company-level financial exposure; it is a <\/span><b>personal legal risk for the CHRO, CFO, and designated compliance officer.<\/b><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Red_Flags_That_Signal_Systemic_Payroll_Compliance_Risk\"><\/span><b>Red Flags That Signal Systemic Payroll Compliance Risk<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The following warnings should be treated as early-warning indicators by CHROs and internal audit teams:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Challan vs. payslip mismatches<\/b><span style=\"font-weight: 400;\"> &#8211; EPF\/ESI contributions are deducted from employees, but deposited amounts differ from payroll registers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Delayed month-end closes \u2013 <\/b><span style=\"font-weight: 400;\">Finance teams routinely closing payroll after the 15th of the following month create structural EPF default risk.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Informal contractor classification<\/b><span style=\"font-weight: 400;\"> &#8211; Workers deployed as &#8220;contractors&#8221; who functionally meet the definition of employees under the EPF\/ESI Acts.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Legacy salary structures<\/b><span style=\"font-weight: 400;\"> &#8211; CTCs built to minimize statutory deductions may no longer hold under the Code on Wages&#8217; wage definition.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>State multiplicity gaps<\/b><span style=\"font-weight: 400;\"> &#8211; Multi-state employers without location-specific PT or LWF registrations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>No unified compliance calendar<\/b><span style=\"font-weight: 400;\"> &#8211; Teams are relying on email reminders rather than a system-driven compliance calendar.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Absence of a compliance register<\/b><span style=\"font-weight: 400;\"> &#8211; Statutory requirements under the Shops &amp; Establishments Act and Factory Act to maintain registers that are either not maintained or outdated.<\/span><\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"FAQ\"><\/span><strong>FAQ<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<style>#sp-ea-13723 .spcollapsing { height: 0; overflow: hidden; transition-property: height;transition-duration: 300ms;}#sp-ea-13723.sp-easy-accordion>.sp-ea-single {margin-bottom: 10px; border: 1px solid #e2e2e2; }#sp-ea-13723.sp-easy-accordion>.sp-ea-single>.ea-header a {color: #444;}#sp-ea-13723.sp-easy-accordion>.sp-ea-single>.sp-collapse>.ea-body {background: #fff; color: #444;}#sp-ea-13723.sp-easy-accordion>.sp-ea-single {background: #eee;}#sp-ea-13723.sp-easy-accordion>.sp-ea-single>.ea-header a .ea-expand-icon { float: left; color: #444;font-size: 16px;}<\/style><div id=\"sp_easy_accordion-1781520621\"><div id=\"sp-ea-13723\" class=\"sp-ea-one sp-easy-accordion\" data-ea-active=\"ea-click\" data-ea-mode=\"vertical\" data-preloader=\"\" data-scroll-active-item=\"\" data-offset-to-scroll=\"0\"><div class=\"ea-card ea-expand sp-ea-single\"><h3 class=\"ea-header\"><span class=\"ez-toc-section\" id=\"What_happens_if_an_employer_fails_to_deposit_PF_contributions_on_time_in_India\"><\/span><a class=\"collapsed\" id=\"ea-header-137230\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse137230\" aria-controls=\"collapse137230\" href=\"#\" aria-expanded=\"true\" tabindex=\"0\"><i aria-hidden=\"true\" role=\"presentation\" class=\"ea-expand-icon eap-icon-ea-expand-minus\"><\/i> What happens if an employer fails to deposit PF contributions on time in India?<\/a><span class=\"ez-toc-section-end\"><\/span><\/h3><div class=\"sp-collapse spcollapse collapsed show\" id=\"collapse137230\" data-parent=\"#sp-ea-13723\" role=\"region\" aria-labelledby=\"ea-header-137230\"> <div class=\"ea-body\"><p>If an employer fails to deposit PF on time, the employer is responsible for paying compensation equivalent to 5\u201325% of the delayed amount (based on the length of delay) plus 12% annual interest. A wilful default may invite criminal charges against the employers' directors.<\/p><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><span class=\"ez-toc-section\" id=\"Can_an_employer_be_imprisoned_for_payroll_non-compliance_in_India\"><\/span><a class=\"collapsed\" id=\"ea-header-137231\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse137231\" aria-controls=\"collapse137231\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\"><i aria-hidden=\"true\" role=\"presentation\" class=\"ea-expand-icon eap-icon-ea-expand-plus\"><\/i> Can an employer be imprisoned for payroll non-compliance in India?<\/a><span class=\"ez-toc-section-end\"><\/span><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse137231\" data-parent=\"#sp-ea-13723\" role=\"region\" aria-labelledby=\"ea-header-137231\"> <div class=\"ea-body\"><p>Yes, according to the EPF, ESI, and Code on Wages Act, the employer shall be liable for imprisonment ranging from six months to five years for any type of wilful default or obstruction to the proceedings.<\/p><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><span class=\"ez-toc-section\" id=\"Does_the_new_Code_on_Wages_apply_across_all_of_India_in_2026\"><\/span><a class=\"collapsed\" id=\"ea-header-137232\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse137232\" aria-controls=\"collapse137232\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\"><i aria-hidden=\"true\" role=\"presentation\" class=\"ea-expand-icon eap-icon-ea-expand-plus\"><\/i> Does the new Code on Wages apply across all of India in 2026?<\/a><span class=\"ez-toc-section-end\"><\/span><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse137232\" data-parent=\"#sp-ea-13723\" role=\"region\" aria-labelledby=\"ea-header-137232\"> <div class=\"ea-body\"><p>Yes, however, it is a matter of discretion for individual states to implement it. Up until mid-2026, only some states have implemented the code, while most other states are still at various stages of implementation of this law. Until that time, old laws will prevail where individual states do not introduce new rules.<\/p><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><span class=\"ez-toc-section\" id=\"What_is_the_penalty_for_not_filing_TDS_returns_on_time\"><\/span><a class=\"collapsed\" id=\"ea-header-137233\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse137233\" aria-controls=\"collapse137233\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\"><i aria-hidden=\"true\" role=\"presentation\" class=\"ea-expand-icon eap-icon-ea-expand-plus\"><\/i> What is the penalty for not filing TDS returns on time?<\/a><span class=\"ez-toc-section-end\"><\/span><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse137233\" data-parent=\"#sp-ea-13723\" role=\"region\" aria-labelledby=\"ea-header-137233\"> <div class=\"ea-body\"><p>The delay in filing of returns is penalised under Section 234E of the Income Tax Act with a daily charge of \u20b9200 till the return filing, capped at the maximum amount of the total TDS. Other penalties are applicable under Section 271H between \u20b910,000 and \u20b9100,000.<\/p><\/div><\/div><\/div><div class=\"ea-card sp-ea-single\"><h3 class=\"ea-header\"><span class=\"ez-toc-section\" id=\"Is_Professional_Tax_applicable_to_all_Indian_employees\"><\/span><a class=\"collapsed\" id=\"ea-header-137234\" role=\"button\" data-sptoggle=\"spcollapse\" data-sptarget=\"#collapse137234\" aria-controls=\"collapse137234\" href=\"#\" aria-expanded=\"false\" tabindex=\"0\"><i aria-hidden=\"true\" role=\"presentation\" class=\"ea-expand-icon eap-icon-ea-expand-plus\"><\/i> Is Professional Tax applicable to all Indian employees?<\/a><span class=\"ez-toc-section-end\"><\/span><\/h3><div class=\"sp-collapse spcollapse \" id=\"collapse137234\" data-parent=\"#sp-ea-13723\" role=\"region\" aria-labelledby=\"ea-header-137234\"> <div class=\"ea-body\"><p>No. Professional Tax is a state-level levy and applies only in states that have enacted PT legislation, approximately 21 states and UTs. The maximum PT that any state can levy is \u20b92,500 per year per employee (under Article 276 of the Constitution).<\/p><\/div><\/div><\/div><script type=\"application\/ld+json\">{ \"@context\": \"https:\/\/schema.org\", \"@type\": \"FAQPage\", \"@id\": \"sp-ea-schema-13723-6a30bc4de6388\", \"mainEntity\": [{ \"@type\": \"Question\", \"name\": \" What happens if an employer fails to deposit PF contributions on time in India?\", \"acceptedAnswer\": { \"@type\": \"Answer\", \"text\": \"If an employer fails to deposit PF on time, the employer is responsible for paying compensation equivalent to 5\u201325% of the delayed amount (based on the length of delay) plus 12% annual interest. 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The maximum PT that any state can levy is \u20b92,500 per year per employee (under Article 276 of the Constitution).\" } }] }<\/script><\/div><\/div>\n<p>Payroll compliance is not just an HR issue anymore &#8211; it&#8217;s a business risk that affects financials, governance, and even reputation. <em><strong>TankhaPay<\/strong> <\/em>helps organizations in <a href=\"https:\/\/www.einpresswire.com\/article\/918938855\/8-payroll-process-steps-every-indian-employer-must-follow-tankhapay\">streamlining payroll processes<\/a>, ensuring statutory compliance, and maintaining audit-proof documentation without any issues. By automating compliance tracking, companies can mitigate risks of fines, interest, and legal hassle.<\/p>\n","protected":false},"excerpt":{"rendered":"<div class=\"tmnf_excerpt\">Key Takeaways Audit your wage definition against the Code on Wages interpretation; the most optimis\u2026<\/div>","protected":false},"author":6,"featured_media":13728,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[159,268],"tags":[340],"class_list":["post-13718","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-payroll","category-statutory-compliance","tag-payroll-compliance"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.7 (Yoast SEO v27.7) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Payroll Compliance Penalties in India: Employer Guide | TankhaPay<\/title>\n<meta name=\"description\" content=\"Payroll compliance penalties can trigger fines, audits, interest, and legal action. 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