Payroll Process in India: The 8-Step Guide for Employers

What is the payroll process in India?

The payroll process in India is the monthly cycle a company follows to pay its employees: calculate gross salary, apply statutory deductions like EPF, ESI, professional tax and TDS, disburse net pay, and file the required returns. At Wisemonk, we run this full cycle for global teams as their India Employer of Record.

It is easiest to think of the process in three phases. Pre-payroll covers your policy, salary structure and the employee inputs you gather. Actual payroll is where you calculate gross pay and every deduction. Post-payroll is disbursement, payslips, and depositing dues and filing returns with the authorities.

Here are the eight steps that make up the payroll process in India, from setup to statutory filing:

1. Define your payroll policy and salary structure.
2. Collect and validate employee inputs.
3. Calculate gross salary for the pay period.
4. Compute statutory deductions (EPF, ESI and professional tax).
5. Calculate and deduct TDS on salary.
6. Arrive at net pay and disburse salaries.
7. Issue payslips and maintain payroll records.
8. Deposit statutory dues and file returns.

We break down each step below. If you also need the compliance side in one place, see our guide to payroll compliance in India.

How do you run payroll in India step by step?

Running payroll in India means moving through the eight steps in order each month: set your policy, gather and validate inputs, calculate gross pay, deduct EPF, ESI, professional tax and TDS, pay the net amount, issue payslips, and then deposit dues and file returns before each deadline.

Step 1: Define your payroll policy and salary structure

Start by fixing your pay cycle, pay date and the salary structure for each role. In India, gross salary is usually split into basic pay, house rent allowance and other allowances, because several statutory contributions are calculated on basic pay. Under the Code on Wages, the components that make up basic, dearness allowance and retaining allowance must be at least 50% of total pay.

Step 2: Collect and validate employee inputs

Gather the data that drives every calculation: PAN, Aadhaar, the Universal Account Number for provident fund, bank details, salary and any revisions, tax-regime choice, investment declarations, and the month's attendance and leave. Validate it before you process, since a wrong PAN or bank number is the most common cause of a failed pay run or a rejected filing.

Step 3: Calculate gross salary for the pay period

Apply the month's attendance to each employee's agreed pay. Add earnings such as overtime, incentives and reimbursements, and subtract any loss of pay for unpaid absence. The result is gross salary for the period, which is the base for every statutory deduction that follows.

Step 4: Compute statutory deductions (EPF, ESI and professional tax)

Next, calculate the mandatory contributions. These are the three that recur every month for most employers:

• Employees' Provident Fund (EPF): employee 12% and employer 12% of basic pay plus dearness allowance. The employer's share splits 8.33% to the pension scheme (EPS) and 3.67% to EPF. Contributions are calculated on a wage ceiling of $158 (Rs 15,000), so the maximum statutory contribution is about $19 (Rs 1,800) each side.
• Employees' State Insurance (ESI): employee 0.75% and employer 3.25%, applicable where monthly wages are $220 (Rs 21,000) or below ($263 (Rs 25,000) for an employee with a disability). It funds medical and cash benefits and is mandatory once you have 10 or more covered employees.
• Professional tax (PT): a state-level tax deducted from salary, set by each state and capped by the Constitution at $26 (Rs 2,500) per year. Rates and slabs vary by state, and a few states do not levy it at all.

EPF and ESI figures are current as of August 2026. For the rate detail behind each contribution, see our breakdown of India payroll tax.

Step 5: Calculate and deduct TDS on salary

Estimate each employee's annual tax under their chosen regime (old or new), then deduct one-twelfth as tax deducted at source each month. From April 1, 2026, salary TDS is governed by Section 392 of the Income-tax Act 2025, which replaced Section 192 of the 1961 Act.

Two form names changed with the new Act. The quarterly salary TDS return, formerly Form 24Q, is now Form 138, and the annual salary certificate you issue to employees, formerly Form 16, is now Form 130. Any payroll system still using the old form names will fail validation.

Step 6: Arrive at net pay and disburse salaries

Subtract all deductions from gross salary to get net pay, the amount that reaches the employee. Most employers pay by bank transfer through NEFT or a bank payment file. Under the Code on Wages, wages for a month must be paid before the seventh day of the following month.

Step 7: Issue payslips and maintain payroll records

Generate a payslip for each employee showing earnings, deductions and net pay. Keep the underlying records, since payroll registers, wage slips and contribution proofs must be produced during any inspection or audit. Clear records also make year-end tax reporting far simpler.

Step 8: Deposit statutory dues and file returns

Finally, pay each authority and file the matching return before its deadline. The deposit dates do not line up, which is where most compliance slips happen:

• EPF: deposit by the 15th of the following month. The earlier five-day grace period was withdrawn, so the 15th is a hard date.
• ESI: deposit within 15 days of the end of the calendar month.
• Salary TDS: deposit by the 7th of the following month, except March, which is due by April 30. File Form 138 every quarter and issue Form 130 to employees by June 15.
• Professional tax: deposit and file on the schedule set by each state, which may be monthly or annual.

A single monthly calendar makes this manageable. Our India payroll compliance calendar lists every due date month by month.

What statutory deductions and deadlines apply to India payroll?

Four statutory items drive India payroll: EPF, ESI, professional tax and TDS on salary. Each has its own rate, wage basis and deposit deadline. The table below summarizes them, with figures shown in USD first and Indian rupees in brackets, as of August 2026.

Rates and thresholds here are set by the EPFO, ESIC and the Income Tax Department and can change, so confirm the current figures before each run.

What are the most common India payroll mistakes?

The process is not hard, but it is unforgiving on timing and detail. In our experience running payroll for global teams, the same handful of errors cause most penalties and employee complaints.

The mistakes we see most often are:

• Late PF or ESI deposits: even a few days late attracts interest and damages.
• Incorrect TDS: wrong regime, missed declarations or a stale form name that fails return validation.
• Missed professional tax filings: easy to forget because the rules differ in every state.
• Wrong statutory base: applying EPF or ESI to the wrong wage components.
• Attendance and loss-of-pay errors: bad inputs quietly corrupt an otherwise correct run.

Most of these trace back to missed deadlines or bad inputs. For who carries the risk when a filing goes wrong, see who is liable if your India payroll vendor makes an error.

Should you run India payroll in-house or outsource it?

It depends on whether you have a legal entity in India. If you do, you can run payroll in-house or hand it to a managed payroll provider. If you do not, an Employer of Record becomes the legal employer and runs the entire process for you.

In-house gives you the most control but needs India payroll knowledge and software. Managed payroll removes the processing work once you have an entity. An EOR removes both the entity requirement and the processing, which is why it suits foreign companies running India payroll without a local entity.

→ Read: Setting up India payroll for a startup

How does Wisemonk run India payroll for global teams?

Wisemonk is an India-native Employer of Record. We help global companies hire, pay and manage employees in India without setting up a local entity, and we run the full payroll process described above as the legal employer. We support 300+ global clients and 2,000+ employees, process $20M+ in payroll, and hold a 4.8/5 rating on G2.

For your India payroll specifically, we handle salary structuring, EPF, ESI, professional tax and TDS, monthly deposits and returns, payslips, and year-end tax reporting. Onboarding takes 24 to 48 hours, and pricing starts from $99 per employee per month.

→ See: what an India hire really costs with our employee cost calculator.