Payroll compliance in Karnataka is not one obligation but six or seven, each with its own law, portal and due date. Salary TDS goes to the Income Tax Department, provident fund to EPFO, ESI to ESIC, professional tax to the state, and the labour welfare fund to the Karnataka Labour Welfare Board, while the wage records behind all of them have to satisfy a labour inspector. Each one is simple on its own. The trouble starts when they are run by different people on different calendars. This guide sets out what a Karnataka employer has to do each month and each year, as of 2026.

Two changes every employer should know about

First, India's four Labour Codes came into force on 21 November 2025, replacing 29 central labour laws. The Codes use one definition of wages: basic pay, dearness allowance and retaining allowance form the core, and where the other components of pay exceed 50% of total remuneration, the excess is added back to wages for statutory purposes. The Ministry of Labour has said the old rules stay in force, to the extent they are consistent with the Codes, until new rules are finally notified, and rule-making was still in progress during 2026.

Second, the Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Salary paid up to 31 March 2026 falls under section 192 of the old Act; salary paid from 1 April 2026 falls under section 392 of the new Act. The quarterly salary TDS statement earlier known as Form 24Q is now Form 138, and the annual salary certificate earlier known as Form 16 is now Form 130.

TDS on salary

The employer estimates each employee's taxable salary for the year under the regime the employee has chosen, works out the tax and deducts it in monthly instalments. The department's guidance asks employers to recompute from the start of each tax year using projected income and declared deductions, and to revise the estimate when salary or declarations change. As of 2026:

Tax deducted is generally deposited by the 7th of the following month. Tax deducted in March is due by 30 April.
Late deposit of tax already deducted attracts interest at 1.5% per month or part of a month.
Form 138 is filed quarterly: by 31 July, 31 October and 31 January for the first three quarters, and by 31 May for the last.
Form 130 is generated from the filed statements and given to each employee by 15 June after the year ends.

Employees' Provident Fund (EPF)

EPF applies to establishments employing 20 or more persons; smaller establishments can register voluntarily. Contributions are calculated on wages up to the statutory ceiling of ₹15,000 a month, which has applied since 1 September 2014. Employer and employee each contribute 12% of wages, and out of the employer's share, 8.33% of wages (within the ceiling) goes to the Employees' Pension Scheme. Contributing on higher wages is possible on a joint request. The monthly Electronic Challan cum Return (ECR) is filed and paid online on the EPFO portal on or before the 15th of each month.

Employees' State Insurance (ESI)

ESI covers employees earning up to ₹21,000 a month (₹25,000 for persons with disability). Coverage of an establishment depends on its headcount and type, broadly from ten employees, and the government has notified extensions to shops and other establishments, so check the current notification for your business. Since 1 July 2019 the contribution is 3.25% of wages from the employer and 0.75% from the employee. It is paid within 15 days of the end of the month to which it relates.

Karnataka professional tax

Employees earning ₹25,000 or more a month pay professional tax of ₹200 a month; those earning less have been exempt since 1 April 2023.
For February, the deduction is higher. The state portal notes that February 2026 was to be deducted at ₹300 per employee instead of ₹200, under a notification dated 15 April 2025.
The employer deducts the tax and pays it by the 20th of the following month, even with a single employee.
Employers register on the e-Prerana portal using their PAN or TAN.

Karnataka Labour Welfare Fund

The labour welfare fund is an annual contribution per employee. The employee's share may be recovered only from December wages, and the employer pays both shares to the Karnataka Labour Welfare Board by 15 January of the following year. For calendar year 2025 the Board set the last date as 15 January 2026. The amounts have been revised several times by amendment, so take the current figures from the Board's notice for the year rather than an old checklist.

Payslips, registers and records

Every statutory payment above is only as good as the records behind it. Keep these current every month, because they are what an EPFO, ESIC or labour department officer will ask to see:

An employee master: joining date, designation, salary structure, PAN, UAN and ESI number.
Appointment letters and any revisions to pay.
Attendance, leave and overtime records that tie to the salary paid.
A monthly salary register showing gross pay, each deduction and net pay.
Payslips issued to every employee, and bank transfer records with payment dates.
Challans and acknowledgements for TDS, EPF, ESI, professional tax and labour welfare fund.
Final settlement and gratuity workings for employees who leave.

A working payroll calendar

1. Before payday: lock attendance, leave, joiners, leavers and salary changes for the month.
2. Payday: run payroll, check it against last month, pay salaries and issue payslips.
3. By the 7th: deposit TDS deducted from last month's salary (March TDS by 30 April).
4. By the 15th: file the EPF ECR and pay, and pay ESI for the previous month.
5. By the 20th: pay Karnataka professional tax for the previous month.
6. Each quarter: file Form 138 by the due date and check the TRACES status.
7. December and January: deduct the employee share of the labour welfare fund from December wages and pay by 15 January.
8. February: apply the higher February professional tax deduction.
9. April to June: reset TDS projections for the new tax year and issue Form 130 by 15 June.

What usually goes wrong

Headcount crosses the EPF or ESI threshold and nobody registers, so arrears build up from the date coverage began.
Salary structures carry large allowances that, under the Labour Codes wage definition, push statutory wages higher than payroll assumes.
TDS is deducted but deposited late, or the quarterly statement is filed with wrong PANs, so employees do not see their credit.
Investment declarations are never collected, and a large catch-up deduction lands in the last quarter.
Professional tax is deducted at the wrong rate in February, or not deducted for employees whose salary crossed ₹25,000 mid-year.
Leavers' final settlements, including gratuity, are calculated by hand and not documented.
Payroll, books and the bank do not agree, which is the first thing an inspector or auditor tests.

For example

This is an illustrative example, not a client case. A Bengaluru services business grows from 15 to 24 people in a year. Salaries are run on a spreadsheet by the founder. ESI was registered early, but EPF was never set up because the business was small when it started. Several new hires earn above ₹25,000, and professional tax is deducted for some of them but not others. When the gap is found, the fix is done in order: EPF registration and a calculation of contributions due from the date the threshold was crossed, professional tax corrected for every employee from their first eligible month, and one salary register that ties attendance, deductions and bank payments together. After that, the same calendar runs every month, and the founder reviews a one-page summary instead of the spreadsheet.

Frequently asked questions

Is professional tax deducted from every employee in Karnataka?

No. As of 2026 it applies to employees whose monthly salary is ₹25,000 or more. Those earning less are exempt. Check the slab each month for employees whose pay changes during the year.

When does a business need to register for EPF?

Once it employs 20 or more persons. Below that, registration is voluntary. Track headcount monthly, including contract and temporary staff, so the date coverage begins is not missed.

Do the new Labour Codes change how payroll is calculated?

They change what counts as wages for statutory purposes, which affects contributions and gratuity, and they bring fixed-term employees into gratuity after one year of service. Many detailed rules were still being finalised in 2026, so review salary structures against the current rules rather than assuming the old ones apply.

What happened to Form 16 and Form 24Q?

Under the Income-tax Rules, 2026, the salary TDS certificate is Form 130 and the quarterly salary TDS statement is Form 138. The obligations are broadly the same; the numbers changed with the new Act.

Beyond Basics runs payroll for businesses in Bengaluru as part of our monthly accounting work: salary computation, payslips, TDS, EPF, ESI, professional tax and the labour welfare fund on one calendar, reconciled against the books. The work is carried out by our team and partner Chartered Accountants, and you get a short monthly note on what was paid and anything that needs a decision.

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This article is general information, not legal, tax or financial advice. Rules change; check the current position for your situation before acting.