Payroll penalties in India are easy to underestimate, because the headline fines are modest but the interest and damages that run alongside them are not — and they compound the longer a default goes unnoticed. This page sets out what payroll non-compliance actually costs in India, sourced to the statutes where possible and marked where a figure could only be traced to secondary commentary.
| Underpayment (wage code) | Up to ₹50,000 |
| Late TDS deposit | 1.5% per month interest |
| Late TDS return | ₹200/day (Section 427) |
| PF arrears | 12% p.a. interest + damages |
Underpayment and wage-code contraventions
Section 54 of the Code on Wages 2019 sets a graded structure. These are maximums, not tariffs — a court has discretion below them.
| Contravention | Maximum penalty | Source |
|---|---|---|
| Paying an employee less than the amount due | Fine up to ₹50,000 | s.54(1)(a) — Primary |
| Repeat of the above within five years of conviction | Imprisonment up to 3 months or fine up to ₹1,00,000, or both | s.54(1)(b) — Primary |
| Any other contravention of the Code or rules | Fine up to ₹20,000 | s.54(1)(c) — Primary |
| Repeat of the above within five years | Imprisonment up to 1 month or fine up to ₹40,000, or both | s.54(1)(d) — Primary |
| Non-maintenance or improper maintenance of records | Fine up to ₹10,000 | s.54(2) — Primary |
Two features of the Code matter more than the amounts. First, section 54(3) requires the Inspector-cum-Facilitator to give a written direction and a compliance period before prosecuting a first-time record-keeping or general contravention — a genuine opportunity to cure that did not exist under the repealed statutes. That opportunity is not available where a similar violation is repeated within five years. Second, section 56 allows compounding of most offences at 50% of the maximum fine, though repeat offences within five years cannot be compounded.
At least one commentary site states a maximum of ₹1.5 lakh under the wage code. That figure does not appear in the bare text of section 54, which caps the repeat-offence fine at ₹1,00,000. We have used the statute.
TDS on salary
The consequences of late deduction and late deposit are separate and cumulative.
| Failure | Consequence |
|---|---|
| Tax not deducted when it should have been | Interest at 1% per month from the date deductible to the date deducted |
| Tax deducted but not deposited | Interest at 1.5% per month from the date of deduction to the date of payment |
| Quarterly statement filed late | Fee of ₹200 per day of delay, capped at the amount of TDS in the statement |
| Statement not filed, or filed with incorrect particulars | Penalty of ₹10,000 to ₹1,00,000 |
An important caveat on section numbers. These consequences are longstanding and their substance is unchanged, but the Income-tax Act 2025 renumbered the sections and reorganised the TDS provisions with effect from 1 April 2026. Under the 2025 Act the late-filing fee on the return is Section 427 (the ₹200-per-day fee, formerly Section 234E) and the penalty for non-filing or incorrect filing is Section 461 (formerly Section 271H). Statements for periods up to 31 March 2026 are still governed by the old sections. For the interest provisions, take the exact citation from the current Act if you need it for a notice.
Provident fund and ESI
PF delays attract both interest and damages, which are distinct and both payable. Under the framework carried into the Code on Social Security, interest runs at 12% per annum on the arrears, with damages levied on a graded scale that rises with the length of the delay. We are marking the damages scale secondary: the graded percentages are widely reported but sit in subordinate provisions that have moved into the Code and its 2026 rules, and we could not confirm the current schedule from primary text.
One figure we can source: the Social Security (Central) Rules 2026 provide that delayed contribution payments by aggregators in respect of gig and platform workers attract interest at 1% per month or part thereof. That is specific to the aggregator regime and does not govern ordinary PF or ESI arrears.
How to calculate TDS on salary — getting the deduction right in the first place.
Figures are sourced to statute where marked Primary and to professional commentary where marked Secondary, current as of 2026. Penalty provisions can change and the Income-tax Act, 2025 renumbered the TDS sections from 1 April 2026. This is general information for employers, not legal advice.