PEO Compliance in India: What Your PEO Files for You

You hired a small team in India, a PEO runs their payroll, and every month a statement arrives full of deductions you did not pick and acronyms you have to look up. The question we hear most from finance and HR leads is simple: what is actually being filed, to whom, and what happens to me if one of those filings is late?

We answer exactly that for global companies hiring in India, and we file this stack every month for 300+ clients and more than 2,000 employees. This guide maps what a PEO files for you, on what calendar, and the parts of compliance that never leave your side of the table.

What compliance does a PEO in India manage for you?

A PEO in India manages your statutory employment compliance across two layers and runs all of it under your own registered Indian entity. It deposits contributions, files returns, and keeps wage records, so your team stays compliant without you touching a government portal.

• Central layer: provident fund, ESI, income tax withholding and gratuity.
• State layer: professional tax and labour welfare fund, which change with every location your team sits in.
• PEO, not EOR: with an entity, the service is a PEO; with no entity, the same work is done by an Employer of Record. We compare the two models in our EOR vs PEO breakdown, so this page stays on compliance.
• Co-employment is not a statutory category in India: it is neither illegal nor impossible, but Indian law recognizes one legal employer per worker, so the PEO acts as your agent and payroll processor rather than a joint employer. We unpack that distinction in our note on co-employment versus joint employment.

Everything below sits inside our wider payroll in India pillar, which carries the process context this compliance map assumes.

What central statutory contributions does a PEO file?

A PEO files every central contribution tied to employment: provident fund and the pension and insurance pieces inside it, Employees' State Insurance where headcount triggers it, and monthly income tax withholding on salaries. It deposits each one and files the matching return on a fixed calendar.

Provident fund (EPF)

Provident fund is the largest recurring statutory deduction most India teams carry.

• Where the employer's share goes: 8.33% is routed to the Employees' Pension Scheme and 3.67% to the fund, with a further 0.50% funding the EDLI life insurance benefit.
• Pension cap, as of 2026: a Rs 25,000 monthly wage ceiling (effective September 17, 2026) caps the pension portion at Rs 2,083.
• What the PEO does: registers you with the EPFO, issues each worker a Universal Account Number, deposits the money, and files the monthly return.
• When it applies: mandatory once you reach 20 employees.

Employees' State Insurance (ESI)

ESI is India's contributory medical and cash-benefit scheme for lower-paid workers.

• Who is in scope: applies from 10 employees, and only to staff earning up to Rs 21,000 a month in gross wages, so a senior team may have nobody in scope while a support-heavy team has many in it.
• What the PEO does: registers the establishment with the ESIC, deducts the employee share, adds the employer share, and deposits both.

Income tax withholding (TDS)

Salary TDS is withheld each month at each employee's applicable slab and deposited to the government.

• Which law applies: from April 1, 2026, this runs under Section 392 of the Income-tax Act 2025, which replaced Section 192 of the 1961 Act.
• What the PEO does: computes the withholding, deposits it, and reconciles it against each person's declared investments at year end through the income tax portal.

Gratuity, bonus and maternity

Three more central obligations accrue in the background.

• Gratuity: a lump sum paid on exit, calculated as the last monthly wage divided by 26, multiplied by 15, multiplied by completed years of service, which works out to roughly 4.81% accruing each year as a derivation rather than a statutory rate. The usual five-year qualifying period is waived for fixed-term employees, who accrue it pro rata.
• Statutory bonus: a minimum of 8.33% of wages earned under Section 26 of the Code on Wages 2019, with the eligibility wage limit set by government notification rather than a fixed figure in the code.
• Maternity benefit: up to 26 weeks of paid leave, no more than 8 of them before the expected delivery date, at establishments with 10 or more employees.

What state obligations does a PEO handle?

State obligations are the second compliance layer, and they change with every location your team sits in. The main one is professional tax, a state-level deduction on salaries with its own rates, slabs and due dates. Some states add a labour welfare fund contribution and shops and establishment registration.

Professional tax

Professional tax is levied by individual states, not the center.

• Why multi-state teams lose time: an employee in Karnataka, Maharashtra and West Bengal can face three different deduction schedules; the amounts are modest and capped, but the due dates and return formats differ by state.
• What the PEO does: registers in each relevant state and files on each state's own clock.

Labour welfare fund and registration

Some states add filings beyond professional tax.

• Labour welfare fund: usually a small periodic amount split between employer and employee.
• Shops and establishment registration: required for the workplace itself.
• Why they matter: these are low-value filings with real penalties for omission, so they belong on the same tracker as the central ones. State rules under the new Labour Codes are still rolling out as of 2026, so the exact state obligations are a moving target your PEO should monitor.

How did the 2025 Labour Codes change PEO compliance?

The four Labour Codes took effect on November 21, 2025, replacing the older standalone acts a PEO used to file under. For compliance this changed the names of several contributions, added a uniform wage definition that caps excluded allowances, and lined up with the Income-tax Act 2025, which moved salary TDS to new sections and forms.

• The four codes: the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020, and the Occupational Safety, Health and Working Conditions Code 2020.
• What files where now: the Ministry of Labour consolidated the older acts into these four, so a PEO now files provident fund, ESI, gratuity and maternity under the Code on Social Security, and wages and bonus under the Code on Wages.
• Central rules first, state rules later: the Code on Wages (Central) Rules were notified as G.S.R. 343(E) on May 8, 2026, but for the central sphere only, so state-level rules continue to arrive on their own timelines.

The uniform wage definition

The codes introduce a single definition of wages in Section 2(y) that matters for every contribution above.

• The 50% rule: excluded allowances, the pieces of pay that sit outside the wage base, cannot exceed 50% of total remuneration; anything above that is added back into wages.
• What it breaks: salary structures that loaded pay into allowances to shrink provident fund and gratuity no longer work the same way, and the contribution base rises for many employees.

Expert insight: If your India salaries were structured years ago to minimize provident fund, re-check them against the 50% rule now. We have seen contribution costs move materially once the wage base is corrected, and a PEO that quietly keeps the old structure is building a future liability for you.

Tax forms and gratuity

The Income-tax Act 2025 took effect April 1, 2026, and changed the forms a PEO files.

• Section 392: salary TDS moved here from the old provisions.
• Form 138: the quarterly withholding return, in place of Form 24Q.
• Form 130: the annual salary certificate, in place of Form 16.
• Gratuity for fixed-term staff: the social security code confirmed that fixed-term employees accrue gratuity pro rata without the five-year wait.

What is the monthly and annual filing calendar?

The core filing calendar is monthly, with two annual touchpoints. Monthly wages and income tax withholding are due by the 7th of the following month, while provident fund and ESI deposits are due within 15 days of month close. Professional tax follows each state's own schedule, and TDS returns are quarterly.

Compliance in India is unforgiving on dates, and a missed deposit is penalized even when the money was ready. We keep the whole cycle visible rather than batched, because a single missed provident fund window can trigger damages that dwarf the contribution itself.

Who is liable if a filing is late, the PEO or you?

In almost every PEO arrangement your Indian entity is the legal employer, so final liability for late or missed filings sits with you, not the PEO. The PEO is your agent and processor. A good contract adds indemnities, but statutory penalties land on the legal employer first.

• Record-keeping lapse: a failure under the Code on Wages carries a fine of up to Rs 10,000.
• Simple non-payment (first offence): runs to 2 to 6 months and up to Rs 50,000.
• Deduct-and-fail-to-deposit: the serious one, under Section 133 of the Code on Social Security. An employer that deducts an employee's contribution and then fails to deposit it faces mandatory imprisonment of one to three years plus a Rs 1,00,000 fine. This is reserved for deducting an employee's money and keeping it.

Expert insight: Because the deduct-and-fail-to-deposit offence can mean jail, not just a fine, insist on seeing the actual deposit challans every month, not a report that says paid. The gap between deducting and depositing is exactly where this liability lives.

A well-drafted PEO contract adds indemnities and service credits so the commercial risk sits with the provider, but it cannot move the statutory liability off your entity. For the setup that puts your entity in that role, our hire through a PEO in India guide walks the full picture.

What compliance stays your responsibility even with a PEO?

Several duties never transfer to a PEO. You remain the data fiduciary for employee personal data under the DPDP Act 2023, you own worker classification decisions, you fund each contribution on time, and you carry your own tax position on the invoice.

• Data protection: under the Digital Personal Data Protection Act 2023 you are the data fiduciary for your employees' personal data, and the PEO is your data processor, which means you need a written data processing contract in place before the first payslip. The obligation to protect that data does not move with the payroll work.
• Worker classification: deciding whether a worker is an employee or a contractor, which the authorities test against the actual working relationship.
• Funding on time: putting cleared money in place so the PEO can deposit each contribution by its deadline.
• Your own indirect tax position: the PEO's invoice carries GST at 18%, zero-rated only where it qualifies as an export of services, and that depends on place of supply.

You can size the all-in cost of an India hire, contributions included, with our employee cost calculator.

How do you verify a PEO's compliance is genuinely sound?

Ask for proof, not assurances. A genuinely sound PEO shows you the monthly challans and payment receipts for provident fund, ESI and TDS, not just a summary report. It provides each worker's UAN and ESIC number, a signed DPDP data processing contract, and a clean trail of filings you can audit on demand.

• The paper trail: every month, the stamped challans and payment receipts for provident fund, ESI and TDS, each UAN and ESIC registration number, and the state professional tax proofs. If the answer to any of those is a summary spreadsheet rather than a source document, treat it as a red flag.
• The perimeter: a signed DPDP data processing agreement, clarity on who holds the legal employer role, and background checks run on the people handling your payroll.

We cover vendor selection in depth in how to choose the best PEO in India, and the real cost drivers in our cost of a PEO in India breakdown.

How Wisemonk keeps your India compliance filed and auditable?

Wisemonk is an India-native employer of record that helps global companies hire, pay, and manage employees without setting up a local entity. We also run compliance under your own entity where you already have one, which is the PEO model this guide describes. We serve 300+ global clients across 2,000+ employees, with $20M+ in annual payroll processed and a 4.8/5 rating on G2.

Here's how we help you stay compliant in India:

• PEO services in India: we run provident fund, ESI, TDS and state filings under your own registered entity, on the calendar above.
• Managed payroll: we process the monthly run, deposits and reconciliations, and give you the source challans, not just a summary.
• EOR Services in India: where you have no India entity, we become the legal employer so you can hire compliantly without incorporating.
• Background verification: we vet new hires before they join, including the people who will touch your payroll data.
• Entity setup: when you are ready to run your own Indian entity, we handle the company registration end to end.

Hear from industry leaders

We've been using WiseMonk to support our India team for the past six months, and the experience has been excellent. They've handled everything from payroll and statutory compliance to equipment procurement and benefits enrollment, all with a level of responsiveness and professionalism that makes managing a remote India team from Canada feel seamless. Nileena and the team are always quick to reply and proactive about flagging anything we need to know. We'd happily recommend WiseMonk to other companies looking to hire and manage talent in India.
- Monika Russell, CFO at Minehub, Canada