Glossary
What are statutory deductions?
Which deductions from salary are required by law, who they are paid to, and how they become liabilities in the books.
Updated
In short
Statutory deductions are amounts the law requires an employer to deduct from salary and pay to the authorities: PF, ESI, professional tax and TDS. SimpleERP posts PF, PT and TDS to one account, Statutory Deductions Payable, when payroll is approved.
Statutory deductions are amounts the law requires an employer to deduct from an employee's salary and pay to a government body: provident fund to the EPFO, ESI to the ESIC, professional tax to the state, and TDS to the Income Tax Department. Until deposited they are the employer's liabilities. Voluntary deductions, such as an advance recovery or a canteen charge, are not statutory.
Statutory deductions: a worked example
Muthu K, welder at Lakshmi Steel Furnitures, on a gross of ₹19,500 in October 2026. Rates are as notified; professional tax is shown at ₹180 for illustration.
| Deduction | Paid to | Basis | Employee | Employer |
|---|---|---|---|---|
| Provident fund | EPFO | 12% of Basic ₹13,000 | ₹1,560 | ₹1,560 |
| ESI | ESIC | 0.75% and 3.25% of gross | ₹146.25 | ₹633.75 |
| Professional tax | Local body, Tamil Nadu | State slab | ₹180 | |
| TDS | Income Tax Department | Estimated annual tax | ₹0 | |
| Total | ₹1,886.25 | ₹2,193.75 |
FAQ
Questions, answered
Which deductions from salary are statutory in India?
Provident fund, ESI, professional tax and TDS on salary, where each applies. Some states also have a labour welfare fund contribution. Which of them apply depends on the business's size and location and the employee's pay. Check the current rules.
Are statutory deductions an expense for the employer?
The employee's share is not: it is part of salary, held as a liability until paid over. The employer's own share of PF and ESI is an expense, posted as an employer contribution and also held as a liability until deposited.
How do I pay statutory deductions from SimpleERP?
Approving the run credits PF, PT and TDS to Statutory Deductions Payable, and the component summary report totals each deduction per month. Pay each authority on its portal, then record the payment with a manual journal or an expense against Statutory Deductions Payable.
What happens if statutory deductions are paid late?
Late deposit of PF, ESI, PT or TDS usually attracts interest and penalties, and for TDS can stop the employee seeing the credit. Due dates and penalties are as notified; check the current rules with your CA.
Related
Keep reading
Provident fund (PF)
A retirement saving run by the EPFO, funded by matching employee and employer contributions, commonly 12% of Basic each.
Read moreESI (Employees' State Insurance)
Employees' State Insurance: health and cash benefits for employees up to a wage limit, funded from gross pay.
Read moreProfessional tax (PT)
A state tax on employment, deducted from salary by the employer, with slabs and schedules that differ by state.
Read more
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