Overview — Why Compliance Matters
Karnataka employers are subject to more than six separate statutory obligations that govern how employee salaries are calculated, deducted, and remitted to government bodies every month. These are not optional — they are mandated by central and state legislation, and failure to comply exposes your business to significant financial and legal risk.
Penalties for payroll non-compliance in Karnataka range from ₹10,000 to ₹1,00,000 per violation under various acts. In serious cases — particularly for EPF and ESI defaults — company directors can face imprisonment of up to three years. Beyond penalties, late filings attract monthly interest charges that compound quickly.
This guide covers every major payroll statutory obligation for Karnataka employers: Professional Tax (PT), Employee Provident Fund (EPF), Employee State Insurance (ESI), Gratuity, Labour Welfare Fund (LWF), the Karnataka Shops & Commercial Establishments Act, and Minimum Wages. For each, you will find the exact contribution rates, due dates, calculation formulas, filing portals, and penalty structures as applicable for FY 2025-26.
Who this guide is for: Founders, HR managers, and payroll officers at Bangalore businesses with 5 to 500 employees. If you process payroll manually or use spreadsheets, this guide will show you what you must be calculating — and what you may be missing.
1. Karnataka Professional Tax (PT)
Professional Tax is levied under the Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976. It is a state-level tax on employment income, applicable to every salaried employee working in Karnataka. The employer is responsible for deducting PT from the employee’s gross salary each month and remitting it to the state government.
For FY 2025-26, the Karnataka PT slab rates are as follows:
| Monthly Gross Salary | PT Deduction |
|---|---|
| Up to ₹24,999 | Nil |
| ₹25,000 and above | ₹200/month |
| February (any salary ≥ ₹25,000) | ₹300 |
| Annual maximum | ₹2,500 |
Employer Registration: Every employer must register for a Professional Tax Registration Certificate (PTRC) within 30 days of starting business or hiring employees. Self-employed individuals require a Professional Tax Enrolment Certificate (PTEC).
Filing Deadlines: Monthly PT must be filed and paid by the 20th of every month via the e-PRERANA portal (pt.kar.nic.in). The annual PT return must be filed by 30 May each year.
Penalty for default: Interest of 1.25% per month on the overdue amount, plus a penalty of up to 50% of the overdue tax. Employers who fail to deduct or remit PT are treated as having paid the tax on behalf of the employee — making the employer fully liable.
→ Calculate exact PT deductions for your team
2. Employee Provident Fund (EPF)
EPF is governed by the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 and administered by the Employees’ Provident Fund Organisation (EPFO). It is mandatory for all establishments with 20 or more employees, though employers can voluntarily register with fewer staff.
The contribution structure for FY 2025-26 is:
| Component | Employee | Employer |
|---|---|---|
| EPF Contribution | 12% of Basic + DA | 3.67% of Basic + DA |
| EPS (Pension Scheme) | — | 8.33% of Basic + DA |
| EDLI (Insurance) | — | 0.50% |
| PF Admin Charges | — | 0.50% |
| Total Employer Cost | 12% | ~13% |
The PF wage ceiling is ₹15,000/month. Employees earning above ₹15,000 basic can opt out of EPF contributions above this ceiling, though many Bangalore companies contribute on actual basic salary as an added benefit.
Every employee must be assigned a Universal Account Number (UAN) before their first contribution is filed. The monthly Electronic Challan cum Return (ECR) must be filed on the EPFO Unified Portal by the 15th of every month.
The EPFO Regional Office for Bangalore is located at Bhavishya Nidhi Bhavan, Koramangala, Bengaluru — 560034.
Penalty for default: Interest at varying rates + damages up to 100% of arrears. Wilful defaults can lead to imprisonment up to 3 years for responsible persons (including directors and partners) under Section 14 of the EPF Act.
3. Employee State Insurance (ESI)
ESI is governed by the Employees’ State Insurance Act, 1948 and provides social security benefits to employees earning ₹21,000/month gross or less (₹25,000 for persons with disabilities). All establishments with 10 or more employees must register.
| Contributor | Rate | Based On |
|---|---|---|
| Employee | 0.75% | Gross wages |
| Employer | 3.25% | Gross wages |
| Total | 4.00% |
ESI has two contribution periods: April–September and October–March. Monthly contributions must be remitted by the 15th of the following month. Half-yearly returns are due by the 11th of November and May.
Important: If an employee’s salary crosses ₹21,000 mid-year, coverage continues until the end of that contribution period. ESI benefits include medical treatment, sickness cash benefits, maternity benefits, disability compensation, and dependent benefits.
The ESIC Regional Office for Bangalore handles registrations and claims for Karnataka employers.
Penalty for default: Simple interest at 12% per annum on unpaid ESI contributions. Employers who fail to register or contribute can face prosecution under the ESI Act.
4. Gratuity
Gratuity is governed by the Payment of Gratuity Act, 1972. It is a one-time lump sum payment made to employees who complete 5 or more years of continuous service with the same employer. For death or permanent disability, the 5-year condition is waived.
Gratuity Formula:
(15 × Last Drawn Monthly Salary × Years of Service) ÷ 26
Example: An employee with 10 years of service earning ₹50,000/month last drawn salary:
(15 × ₹50,000 × 10) ÷ 26 = ₹2,88,461
The maximum gratuity payable is ₹25 lakhs, which is fully tax-exempt under Section 10(10) of the Income Tax Act. Amounts above ₹25 lakhs are taxable as salary income.
Gratuity must be paid within 30 days of it becoming payable (i.e., from the date of separation). Delayed payment attracts simple interest from the due date.
Penalty for non-payment: Simple interest on the delayed amount plus a fine of up to ₹20,000. Failure to comply can result in imprisonment of up to 2 years.
→ Calculate gratuity instantly for any employee
5. Labour Welfare Fund (LWF)
The Labour Welfare Fund is governed by the Karnataka Labour Welfare Fund Act. Unlike the monthly compliance obligations above, LWF is a bi-annual deduction — made in June and December each year.
| Contributor | Amount (per half-year) | Annual Total |
|---|---|---|
| Employee | ₹20 | ₹40 |
| Employer | ₹40 | ₹80 |
| Combined | ₹60 | ₹120 |
LWF contributions are remitted to the Karnataka Labour Welfare Board. The amounts are small, but the obligation is frequently overlooked by growing SMBs — and non-compliance is a common finding during government labour audits.
Note: LWF applies to all employees except those in managerial roles earning above a specified threshold. Check the latest Karnataka Labour Welfare Board notification for the current exemption limit.
6. Karnataka Shops & Commercial Establishments Act
The Karnataka Shops and Commercial Establishments Act, 1961 governs working conditions for employees of shops, hotels, restaurants, theatres, and other commercial establishments. Compliance with this Act is often underestimated but is rigorously enforced.
Registration: Every establishment must register with the local Labour Department within 30 days of commencement. Registrations must be renewed every 5 years.
Key working condition rules:
- Maximum 9 hours per day and 48 hours per week
- No continuous work beyond 5 hours without a rest interval
- 1 mandatory weekly holiday
- Earned leave: 1 day for every 20 working days
- Overtime: Paid at 2× the normal wage rate
- Women employees cannot be required to work after 8 PM without their consent — employer must provide adequate transport if they do
2024 Update: A government notification now permits establishments with 10 or more employees to operate 24×7 subject to conditions including adequate rest and health safeguards. This is particularly relevant for Bangalore’s IT and BPO sector.
Penalty: ₹10,000 to ₹50,000 per violation. Repeat offences attract higher fines and can result in establishment closure orders.
7. Minimum Wages in Karnataka
Under the Minimum Wages Act, 1948, the Karnataka government sets minimum wage rates through the Karnataka Minimum Wages Advisory Board. Employers who pay below the applicable minimum wage are in direct violation of law, regardless of any employment contract terms.
Karnataka minimum wages are structured across three dimensions:
- Industry: Different schedules for IT/ITeS, manufacturing, retail, construction, domestic work, etc.
- Skill level: Unskilled, Semi-Skilled, Skilled, Highly Skilled
- Zone: Zone 1 (Bangalore metro — highest rates), Zone 2 (other cities and towns), Zone 3 (rural areas)
Minimum wages are revised periodically — typically twice a year with Variable Dearness Allowance (VDA) adjustments. Employers must check the latest Karnataka government notification for the applicable rates in their industry and zone before processing each payroll run.
Penalty for non-compliance: Fine up to ₹500 per violation per employee per day + back-payment of wage difference.
8. Compliance Calendar — Monthly Due Dates
Here is a consolidated view of every payroll compliance deadline a Karnataka employer must track every month and year:
| Due Date | Compliance | What to File / Pay |
|---|---|---|
| 7th of month | TDS Payment | Deposit TDS (salary) to Income Tax dept |
| 15th of month | EPF (PF + EPS) | Monthly ECR filing + payment on EPFO Unified Portal |
| 15th of month | ESI Contribution | Monthly ESI remittance on ESIC portal |
| 20th of month | Professional Tax | Monthly PT payment on e-PRERANA (pt.kar.nic.in) |
| 11th Nov & 11th May | ESI Return | Half-yearly ESI return on ESIC portal |
| 30th April | Annual PT Return | Annual PT return on e-PRERANA |
| 30th May | PT Return Filing | Annual PT reconciliation and return submission |
| June payroll | LWF (June) | Deduct & remit LWF to Karnataka Labour Welfare Board |
| December payroll | LWF (December) | Deduct & remit LWF to Karnataka Labour Welfare Board |
| 31st May | Form 16 (TDS) | Issue Form 16 (Part A & B) to all employees |
| 31st July | EPF Annual Return | Annual PF return (if applicable) |
| On exit | Full & Final Settlement | Process F&F within 30 days of last working day |
| Within 30 days | Gratuity | Pay gratuity within 30 days of it becoming due |
Pro tip: Set up automated reminders 5 days before each deadline. A single missed PT filing can cascade into interest charges, penalty notices, and a compliance record that complicates future government interactions.
9. How HR Software Automates All of This
Managing six-plus compliance obligations manually — across different portals, different calculation bases, different frequencies, and different penalties — is not just tedious. It is genuinely risky. A single data entry error in your PT slab, a missed EPFO ECR, or a forgotten LWF deduction can trigger a cascade of notices, interest charges, and compliance hearings.
Our payroll software and statutory compliance module automate the entire workflow:
- Auto-calculation: PT, PF, ESI, LWF, TDS, and Gratuity are all calculated from live payroll data — no manual formulas, no spreadsheets
- Auto-filing ready: Generate ECR files for EPFO, ESI challans, and PT payment data in the exact formats required by each portal
- Deadline alerts: Automated email and dashboard reminders 7, 3, and 1 day before each compliance deadline
- Compliance dashboard: A single view of all pending and completed filings, with red/amber/green status indicators
- Audit trail: Full history of every filing, payment, and approval — essential for government audits and labour inspections
Bangalore HR teams using our platform report a 90% reduction in compliance-related errors and zero penalties across all statutory obligations in their first year of use.
→ See the full compliance automation module • → Explore Payroll Software for Bangalore