Indian Payroll -Complete Knowledge

Imagine you work in a company. You work hard all month — meetings, targets, reports, and deadlines. Then one day, you get an SMS on your phone:

“Your salary of ₹85,000 has been credited to your account.”

Feels great, right?

But have you ever wondered how this money reached your account? That entire process is called Payroll.

In simple words — Payroll is the process of calculating, processing, deducting, and distributing salary to employees, all as per government rules and company policies.

Payroll in India isn’t just about giving out salaries. It’s a complex legal and financial process, involving multiple departments like HR, Accounts, Compliance, Legal, and various Government authorities which includes..

• Basic salary calculation
• Allowances (like HRA, LTA, Bonus)
• Deductions (PF, ESI, PT, TDS)
• Payslip generation
• Statutory Compliance
• Reimbursements and incentives

And this process is repeated every single month – with new challenges each time.

Step by Step Payroll Process

Lets assume Rahul is an HR Executive at XYZ Pvt Ltd. He’s responsible for managing payroll for 50 employees. He uses payroll software, Excel sheets, and has multiple deadlines.

Step 1: Collect Employee Data

• Employee ID
• PAN, Aadhaar, UAN
• Date of Joining, Salary details
• Attendance & Leave data
• Overtime, Bonuses, Incentives

Step 2: Attendance & Leave Management– Track attendance: who came, who took leave, who arrived late. This helps calculate “LOP – Loss of Pay” for extra leaves.

Step 3: Salary Calculation :- Gross Salary = Basic + HRA + Allowances Net Salary = Gross – Deductions (PF, ESI, PT, TDS)

Step 4: Deductions:-

In India, some statutory deductions are mandatory:

• Provident Fund (PF) – 12% from both employee and employer
• ESI – Applicable if salary is below ₹21,000/month
• Professional Tax (PT) – In some states
• TDS – Based on income tax slabs

Step 5: Payslip Generation :- Each employee gets a payslip showing:

• Salary breakup
• Deductions
• Net salary
• Bank details
• Month & Year

Step 6: Salary Disbursement :- Salary is transferred via bank (usually by the 1st or 7th of each month) using NEFT/RTGS/IMPS.

Step 7: Compliance Filing:- This is a critical step

• PF Return – Uploaded monthly on ECR portal
• ESI Return – On ESIC portal
• TDS Return – On TRACES or NSDL
• Form 16 – Given at year-end for tax filing

Payroll Components in India