Setting Up of Business, Industrial and Labour Laws · Various Initial Registrations and Licenses

Professional Tax, EPF and ESI Registrations for Employers

Updated 11 October 2026 · Fact-checked

Professional tax, EPF and ESI are three separate employer registrations. Professional tax is a state levy on earnings. EPF is a retirement savings and pension scheme. ESI is a medical and cash benefit insurance scheme. To answer, name the law, state the trigger, say who registers and pays, and conclude.

Understand Professional Tax, EPF and ESI Registrations

A new employer has to register under several laws once it starts hiring. Three of the most common are professional tax, the Employees' Provident Fund (EPF) and the Employees' State Insurance (ESI). They look alike because each deducts money from salary. But they have different sources of law, different purposes and different triggers.

Professional tax is a tax on profession, trade, calling or employment. It is levied by states, not the Centre. The Constitution allows a state to levy it, and Article 276(2) limits it to ₹2,500 per person per year. Each state has its own Act, rates and forms. Not every state levies it, so you must check the state law where the employee works. An employer usually obtains a registration certificate to deduct and deposit the tax for employees. It may also need an enrolment certificate to pay the tax on its own account.

EPF is about old-age security. The employer and employee both contribute, and the money builds a provident fund, a pension and an insurance benefit. ESI is about sickness, maternity, disablement and death during employment. Contributions fund medical care and cash benefits. Both schemes are now part of the Code on Social Security, 2020, which is in force from 21 November 2025. It replaced the older EPF Act, 1952 and ESI Act, 1948 as the source of law. Rules, rates, ceilings and portals work through the Code, the rules made under it and notifications, so do not assume the old Act details still apply.

The Code gives wages one unified definition. Specified exclusions generally cannot exceed 50% of total remuneration. If they do, the excess is added back to wages. So wages are not simply basic pay plus dearness allowance. EPF contributions are calculated on wages as defined in the Code and the notified rules.

The key point for exams is the difference in trigger. The Code contains its own coverage provisions for EPF and ESI. Thresholds and extensions of coverage operate through those provisions and through notifications, so do not rely on a single remembered headcount. The earlier Acts used thresholds of 20 employees for EPF and 10 for ESI, and the earlier ESI scheme also used a wage ceiling. Use such figures only when the question gives them. Professional tax depends on the state law and the salary slab. Coverage, wage ceilings and rates can change by notification, so use the figures in your study material and in the question.

Key rules to remember

Professional tax - source and cap: Levied by the State under its own Act; maximum ₹2,500 per person per year (Article 276(2) of the Constitution); Rates and slabs differ by state. Not all states levy it. Do not quote one state's slab as the national rule.
EPF - coverage: Under the Code on Social Security, 2020: as per the Code's coverage provisions, the scheme provisions and notifications; Thresholds and extensions operate through the Code's provisions and notifications. The earlier EPF Act, 1952 used 20 or more employees as its threshold. Use that figure only as the earlier position or when the question supplies it.
EPF - contribution rate: Employee 12% of wages + Employer 12% of wages (figures under the existing scheme and rules, subject to notification); Wages here mean wages as defined in the Code on Social Security, 2020 and the notified rules. The Code has a unified definition, under which specified exclusions generally cannot exceed 50% of total remuneration. Use the wage figure given in the question. Under the earlier pension arrangement, the employer's 12% is split: 8.33% to the pension scheme (on wages up to a notified ceiling, earlier ₹15,000 a month) and the balance to the provident fund. If the question gives different rates or ceilings, use those.
ESI - coverage: Under the Code on Social Security, 2020: as per the Code's coverage provisions, with extensions through notification; The earlier ESI scheme used 10 or more employees and a wage ceiling of ₹21,000 a month. These are the figures commonly used from that scheme and are subject to notification. Use the figures given in the question. Do not state them as a fixed rule under the Code.
ESI - contribution rate: Employer 3.25% + Employee 0.75% = 4% of wages (figures commonly used from the earlier ESI scheme, subject to notification); Rates are fixed by notification, so use the rates given in the question. Earlier, employees earning very low daily wages were exempt from their own share, but the employer still paid its share.
Core difference: EPF = retirement savings and pension; ESI = medical and cash benefits; PT = state tax on employment; Use this as a one-line comparison in any 'distinguish' question.

How to solve Professional Tax, EPF and ESI Registrations questions

Use this method for a question on employer registration, a comparison, or a short case on a new company.

1Read the facts and note the state, the number of employees, the wage levels and any thresholds, ceilings or rates the question gives.
2Name the law for each registration: the state Professional Tax Act, and the Code on Social Security, 2020 for EPF and ESI.
3Apply the trigger. For EPF and ESI, say that the Code has its own coverage provisions, applied with the scheme provisions and notifications, then apply any headcount or wage limit the question supplies (the earlier Acts used 20 employees for EPF, and 10 employees with a ₹21,000 wage limit for ESI). For professional tax check whether the state levies it, which slab applies and who is liable.
4State who registers and who pays. The employer registers, deducts the employee's share and deposits both shares.
5Give the rates or amounts if asked, using the figures in the question, and show each calculation.
6Add the purpose of each scheme in one line if the question asks for a difference.
7Conclude clearly: which registrations are needed, and from when.

Quickest way: Three-question check

When to use it: Use when time is short and the question gives facts about a new employer.

Ask: what coverage figures does the question give? Apply any headcount it states. If it gives none, say that coverage under the Code depends on its coverage provisions and notifications.
Ask: does the question give a wage ceiling for ESI (the earlier scheme used ₹21,000 a month)? If so, test each employee's wages against it.
Ask: which state? Check that state's professional tax law for registration and slabs, and whether any employee falls in a nil slab.
Write the answer as law, trigger, who registers, conclusion.

Common mistakes in Professional Tax, EPF and ESI Registrations

Treating professional tax as a central tax or as part of the social security Code.
All three are salary deductions, so they get grouped together.
Fix: Remember that professional tax is a state levy under each state's Act, limited by Article 276(2) of the Constitution to ₹2,500 per person per year. EPF and ESI come from the Code on Social Security, 2020.
Saying ESI covers every employee of a covered establishment, or treating a wage ceiling as a fixed rule of the Code.
Students remember the head-count rule and forget that a wage limit may apply, or they memorise the earlier ₹21,000 figure as permanent.
Fix: State the coverage test the question gives, including any wage limit per employee. The ₹21,000 a month ceiling is the figure commonly used from the earlier ESI scheme and is subject to notification.
Mixing up the EPF and ESI contribution rates, or stating them as fixed by the Code.
Both have an employer and an employee share, and the numbers look alike.
Fix: EPF is 12% + 12% and ESI is 3.25% + 0.75% under the existing scheme figures, subject to notification. Link the large rates to savings and the small rates to insurance, and use the rates given in the question.
Stating the 20-employee (EPF) and 10-employee (ESI) thresholds as the current rule under the Code.
Older notes and books built on the earlier Acts give these as the trigger, and the two numbers get swapped.
Fix: Say that the Code has its own coverage provisions, with thresholds and extensions operating through those provisions and notifications. Mention 20 and 10 only as the earlier position or when the question supplies them.
Quoting one state's professional tax slab as the general rule.
Students memorise a slab from one state.
Fix: State only the Article 276(2) limit of ₹2,500 per person per year and say that rates, slabs, exemptions and registration forms depend on the state law. Give a slab only if the question gives it.
Citing the old EPF Act, 1952 and ESI Act, 1948 as the current law, or using their wage definition.
Older notes and books still use these names and treat wages as basic plus dearness allowance.
Fix: Cite the Code on Social Security, 2020, in force from 21 November 2025. Mention the older Acts only to show what was replaced. Under the Code, wages have a unified definition in which specified exclusions generally cannot exceed 50% of total remuneration, and EPF contributions are calculated on wages as defined in the Code and the notified rules.

Worked examples

Example 1

An employee of Vidya Textiles Pvt Ltd earns wages of ₹14,000 a month (wages as defined under the Code on Social Security, 2020). The establishment is covered under EPF and ESI. Assume the question gives these figures: EPF 12% each for employee and employer, with the employer's share split 8.33% to pension on wages up to ₹15,000; ESI employer 3.25% and employee 0.75%, with a wage ceiling of ₹21,000. Calculate the monthly EPF and ESI contributions of the employee and the employer.

Show the solution

EPF employee share = 12% of ₹14,000 = ₹1,680.
EPF employer share = 12% of ₹14,000 = ₹1,680.
Of the employer share, pension at 8.33% of ₹14,000 = ₹1,166.20 (wages are below the ₹15,000 ceiling given). The balance for the provident fund = ₹1,680 − ₹1,166.20 = ₹513.80.
ESI: wages of ₹14,000 are within the ₹21,000 ceiling given, so the employee is covered.
ESI employee share = 0.75% of ₹14,000 = ₹105.
ESI employer share = 3.25% of ₹14,000 = ₹455.
Total ESI = ₹105 + ₹455 = ₹560.

Answer: EPF: employee ₹1,680 and employer ₹1,680 (₹1,166.20 to pension, ₹513.80 to provident fund). ESI: employee ₹105 and employer ₹455, total ₹560.

Example 2

Sundaram Foods Pvt Ltd, a newly incorporated company, starts operations in Maharashtra with 25 employees. Most earn ₹18,000 a month. Assume the question states that EPF applies to establishments with 20 or more employees, and ESI to establishments with 10 or more employees and to employees earning up to ₹21,000 a month. Advise on the registrations it must obtain for professional tax, EPF and ESI.

Show the solution

Provision: EPF and ESI are governed by the Code on Social Security, 2020, which has its own coverage provisions, applied with the scheme provisions and notifications. Professional tax is governed by the state law of Maharashtra under the State's constitutional power to levy it, and Article 276(2) limits it to ₹2,500 per person per year.
EPF: on the figure given, the establishment has 25 employees, which is 20 or more, so EPF registration is required. The employer deducts the employee's share from wages, adds its own share and deposits both.
ESI: on the figures given, 25 employees is 10 or more, so the establishment is covered. Employees earning ₹18,000 are within the ₹21,000 wage limit given, so they are covered. The employer registers, deducts the employee share, adds its own share and deposits the total.
Professional tax: the employer must register with the state authority, deduct tax from each employee's salary as per the Maharashtra slab and deposit it. The amount depends on the slab for each employee's monthly salary. An employee whose salary falls in a nil or exempt slab pays no tax, so nothing is deducted for that employee. The question gives no slab, so state the rule and do not invent figures. The employer should also check whether an enrolment certificate is needed for its own liability.
Conclusion: the company must obtain EPF, ESI and professional tax registrations and file the periodic returns. For professional tax, the amount deducted depends on the Maharashtra slab for each employee, and employees in a nil slab pay none.

Answer: On the figures given, Sundaram Foods must register under EPF (25 is at least 20), under ESI (25 is at least 10 and wages are within ₹21,000), and for professional tax under the Maharashtra law. It deducts and deposits professional tax as per the state slab for each employee, subject to the Article 276(2) limit of ₹2,500 per person per year, and no tax is deducted from employees in a nil or exempt slab.

Exam tips

For 'distinguish between EPF and ESI', write a short comparison on purpose, trigger, rates and benefits. Add one line on professional tax if the question names it.
Always cite the Code on Social Security, 2020 for EPF and ESI. Avoid giving the older Acts as current law.
In a case question, write the employee count and wage limit from the facts before giving your conclusion.
Show calculations line by line, even short ones. Marks follow the steps.
For professional tax, state the state-law basis and the Article 276(2) limit of ₹2,500 per person per year. Say that slabs and exemptions depend on the state, and avoid inventing slabs.

Practice questions from Various Initial Registrations and Licenses

Professional Tax, EPF and ESI Registrations: frequently asked questions

What is the difference between EPF and ESI?

EPF is a retirement scheme that builds a provident fund, a pension and an insurance benefit. ESI is an insurance scheme for medical care and cash benefits during sickness, maternity, disablement or death. Under the Code on Social Security, 2020, coverage for both follows the Code's own coverage provisions, applied with the scheme provisions and notifications. The earlier Acts used 20 employees for EPF and 10 employees with a wage limit for ESI.

Do I need EPF and ESI registration for a new company?

It depends on whether the establishment falls within the coverage provisions of the Code on Social Security, 2020, read with the scheme provisions and notifications. The earlier Acts used 20 or more employees for EPF, and 10 or more employees with a ₹21,000 monthly wage limit for ESI. In an exam, apply the figures the question gives and state your conclusion clearly.

Is professional tax a central or state tax?

It is a state tax. Each state that levies it has its own Act, rates, slabs and registration process. Article 276(2) of the Constitution limits it to ₹2,500 per person per year.

Who pays the contributions, the employer or the employee?

Both share the cost. The employer deducts the employee's share from wages, adds its own share and deposits the total. For professional tax, the employer deducts it from salary as per the state slab and deposits it with the state. An employee in a nil or exempt slab pays none.