ESIC Deduction Rules for Salaries Above ₹21,000: Complete Guide for 2025

ESIC Deduction Rules for Salaries: The Government of India, through the Employees’ State Insurance Corporation (ESIC), is committed to ensuring social security and healthcare benefits for workers. The Employees’ State Insurance (ESI) scheme, governed by the ESI Act, 1948, provides medical, sickness, maternity, and other benefits to employees.

This guide explains the ESIC deduction rules when an employee’s salary exceeds ₹21,000 per month, effective for 2025, to help employers and employees comply with regulations. Administered by the Ministry of Labour and Employment, these rules aim to maintain fairness and transparency in workplaces across India.

What is the ESI Scheme?

The ESI scheme is a social security program that offers healthcare and financial benefits to employees in non-seasonal factories or establishments with 10 or more employees (20 in some states). It applies to employees earning up to ₹21,000 per month (₹25,000 for persons with disabilities). Contributions are made by both employees (0.75% of wages) and employers (3.25% of wages), effective from 1st July 2019, to fund benefits like medical care, sickness benefits, maternity leave, and disability support.

ESIC Deduction Rules for Salaries Above ₹21,000

The ESI scheme operates on six-month contribution periods: April 1 to September 30 and October 1 to March 31. Here’s how deductions work when an employee’s salary exceeds ₹21,000:

1. Coverage During Contribution Period:
   1. If, at the beginning of a contribution period, an employee’s salary is ₹21,000 or less (e.g. G. , April 1, 2025), they continue to be covered for the duration, even if their pay is reduced increases above ₹21,000 mid-period due to a raise or promotion.
   1. Example: Ms. Priya’s salary is ₹20,000 in April 2025 but rises to ₹23,000 in June 2025. ESI deductions continue on her full gross wages (₹23,000) until September 30, 2025, and she retains benefits for the corresponding benefit period (July 1, 2025, to December 31, 2025).
2. No Mid-Period Exit:
   1. Employees who earn more than ₹21,000 a year are not allowed to opt out of ESI in the middle of the period. Both employee (0.75%) and employer (3.25%) contributions are mandatory until the period ends.
3. Next Contribution Period:
   1. At the beginning of the subsequent contribution period, if the salary is still more than ₹21,000 (e.g. G. , October 1, 2025), deductions cease and the employee is no longer covered by ESI.
4. Exemptions:
   1. Employees earning a daily average wage of up to ₹176 are exempt from contributing, but employers must still pay their 3.25% share.
   1. Conveyance allowance is excluded from ESI wage calculations, per the Supreme Court order dated 8th March 2021.

Contribution Calculation

For an employee earning ₹23,000 monthly during a contribution period:

• Employee contribution: 0.75% of ₹23,000 = ₹172.50
• Employer contribution: 3.25% of ₹23,000 = ₹747.50
• Total: ₹920 per month

Payments must be deposited by the 15th of the following month via the ESIC portal (www.esic.gov.in) or authorized banks like SBI.

Compliance and Penalties

Employers must:

• Register covered establishments on www.esic.gov.in.
• Contributions should be deducted and sent by the fifteenth of every month.
• File returns for the periods April–September (due October 11) and October–March (due April 11).

Non-compliance, such as late payments or non-payment, may result in:

• Interest at 12% per year for each day of delay.
• Penalties up to ₹10,000 or imprisonment up to three years under the ESI Act.

Why Compliance Matters

Adhering to ESIC rules ensures employees receive essential benefits like medical care, 70% sickness benefits for up to 91 days, 90% disability benefits, and maternity support. Employers stay out of trouble with the law and support worker welfare. Employees should check payslips to confirm correct deductions.