HR & Payroll Software · Updated 30 Oct 2026

Payroll Compliance Basics for Indian Small Businesses

A plain-language overview of the payroll obligations small employers in India need to know — and how payroll software helps you get them right. Always confirm current thresholds with your CA.

Hiring your first employees brings a new set of responsibilities. Salaries must be paid on time, and depending on the size of your business and how much people earn, you may need to deduct and deposit contributions for provident fund, employees' state insurance, professional tax and income tax. Getting this wrong leads to interest, penalties and unhappy employees.

This guide gives an overview so you know what to ask your accountant. Rules and thresholds change, so always confirm the current position with your CA or the official EPFO, ESIC and income-tax websites.

The new labour codes

India's four labour codes — on wages, social security, industrial relations, and occupational safety — came into effect on 21 November 2025, replacing many older labour laws. Detailed rules continue to be notified by the central and state governments. One change that affects payroll for many employers is the uniform definition of "wages": allowances above a set share of total pay are added back to wages, which can increase the base on which PF and gratuity are calculated. If your salary structures have a low basic salary and large allowances, ask your CA to review them.

Provident Fund (EPF)

EPF is a retirement savings scheme run by the Employees' Provident Fund Organisation. Establishments above the employee threshold must register, and both employer and employee contribute a percentage of wages each month. Contributions are deposited online through the EPFO employer portal, and each employee has a Universal Account Number (UAN) that stays with them across jobs.

Employees' State Insurance (ESI)

ESI provides medical and cash benefits to employees earning up to a wage ceiling. Covered establishments register with ESIC, and employer and employee contributions are paid monthly through the ESIC portal. Employees receive access to ESI dispensaries and hospitals.

Professional Tax (PT)

Professional tax is levied by some state governments, not all. Rates, slabs and filing frequency vary by state, and there is a constitutional upper limit on the amount per person per year. If you have employees in several states, you may need multiple registrations.

TDS on salaries

Employers must deduct income tax at source from salaries when an employee's estimated taxable income exceeds the exemption limit, deposit it with the government, file quarterly TDS returns and issue Form 16-equivalent certificates to employees. Employees choose between the new and old tax regimes, which changes how much tax is deducted. India's new Income-tax Act took effect from April 2026 and renumbered many provisions, so older articles may quote section numbers that no longer apply.

Other obligations to know about

  • Labour Welfare Fund in some states.
  • Gratuity for eligible employees when they leave after the qualifying period.
  • Bonus under the applicable law for eligible employees.
  • Appointment letters, wage slips and registers as required under the labour codes and state rules.

How payroll software helps

Payroll software such as Keka, greytHR, Zoho Payroll and RazorpayX Payroll calculates these deductions automatically from your salary structures, generates payslips, prepares challans and returns, and keeps records. Some can also pay salaries and statutory dues directly. Look for:

  • Support for the states where your employees work (for PT and LWF).
  • Regular updates when rules change.
  • Attendance and leave integration, so loss-of-pay is calculated correctly.
  • An employee app for payslips, tax declarations and proofs.
  • Reports your CA can use for audits and returns.

A simple monthly payroll checklist

  1. Lock attendance and leave by a fixed date each month.
  2. Add new joiners and remove leavers with correct dates.
  3. Run payroll and review totals against last month.
  4. Pay salaries.
  5. Deposit PF, ESI, PT and TDS by their due dates.
  6. Share payslips and file returns as they fall due.

Compare payroll tools on our HR and payroll software page, and use our free salary and tax calculators for quick checks.

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