Are there limits to it? Are there other procedures for punishing diplomats who break laws?
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The country who the diplomats belong to can allow them to be arrested charged etc. or even when they return to the country charge them in that country. If the diplomatic immunity is upheld by the home country the other country can declare them as persona non grata and basically mean that the “diplomat” has 48 hours to leave the country.
Diplomatic immunity means diplomats (and certain staff, family members) are immune from the laws of the host country.
So, can they be punished for breaking laws?
Yes. By being expelled. This is where the host country basically revokes their diplomatic status and tells them to take a hike.
In some cases their home country may revoke their immunity and allow the host country to prosecute them.
The guest country apply to the host country for the diplomats they want to send to get diplomatic immunity. This is usually granted without any objections. With this diplomatic immunity the host country have promised to not touch the diplomat in any way. So no arrests, no traffic stops, no searches, etc. There are usually limits but they might not be spelled out. For example police may chose to violate the diplomatic immunity of a guest diplomat in order to save someones life. And it is not uncommon for certain military guards to get instructions for how to deal with diplomats depending on what they are guarding.
In some cases diplomats do end up committing crimes. Lesser crimes tends to be ignored. However even parking tickets may rack up millions of dollars and become a problem. Although murders does also happen from time to time. Diplomatic immunity does still apply but the host country who issues the diplomatic immunity can retract it so the diplomat have to leave or they may use other diplomatic means to make sure the diplomats who commit the crimes are punished. Unless the crime have been ordered by the guests country or it is used as part of a diplomatic conflict or show of force the guest country usually wants the criminals to face justice just as much as the host country. But exactly how this is done is down to diplomatic negotiations between the countries.
Diplomatic immunity is designed to prevent a host government from unjustly targeting or criminalizing a diplomat. There are a lot of laws in every country, and diplomats change locations every two to four years. It is difficult to understand some languages, street signs, and even learning every law that could apply is impossible. Willful violations as others explained, and egregious ones will definitely be prosecuted in some way, immunity is designed so diplomats aren’t getting in trouble for inadvertently breaking laws they did not understand or were unaware of. I was a diplomat’s daughter, and I used diplomatic immunity inadvertently a few times. I was pulled over and taken into custody for riding a motor scooter in Bolivia, I was pulled over for speeding in Canada, and in both cases let go with everything dropped.
My related question: What are cops supposed to do if one diplomat assaults another?
Along with what others have said, the Host country can declare him unwanted (Persona non grata). So, the diplomat must run back home. But, as with almost everything in diplomacy, it boils down to negotiation and power balance between the host and guest countries.
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