Choosing payroll software in India: PF, PT, TDS and payslips done right

Choosing payroll software in India is less about features and more about trust. Every month the system decides how much each person is paid and how much is deducted for Provident Fund, Professional Tax and income tax. If those numbers are wrong, employees notice first, and the corrections involve government portals, not just your own records.

This guide sets out what good payroll software should do for an Indian company of twenty to a few hundred people: the statutory calculations, the inputs it needs, the controls that keep history intact and the payslips employees actually read. It is written for founders, HR leads and finance leads comparing options or replacing a spreadsheet.

Why payroll software in India needs more than arithmetic

Payroll looks like a calculation: gross salary minus deductions equals net pay. In practice, an Indian payroll depends on several rules that interact. PF is calculated on basic wages, so the salary structure matters. PT depends on the state where the employee works. TDS depends on a projection of the employee's whole year and on the tax regime they choose. Leave without pay reduces gross, which changes some deductions in turn.

A spreadsheet can hold all of this, but only as formulas that one or two people understand. Payroll software earns its place by applying the same rules every month, for every employee, and by keeping a record of what was paid. Our plain-English guide to PF, PT and TDS explains the rules themselves; this article is about what the software should do with them.

Provident Fund: what the software should handle

For covered employees, PF is generally 12% of basic wages (plus dearness allowance) from the employee and a matching contribution from the employer, part of which goes to the pension scheme. The decisions that vary between companies are which employees are covered, and whether contributions are on actual basic wages or capped at the statutory wage ceiling.

When you evaluate payroll software, check that:

• PF is calculated from the Basic component of the salary structure, so a change in the split is reflected automatically.
• Employee and employer contributions are both shown, the employee's on the payslip and the employer's in payroll cost.
• Days of leave without pay reduce the base before PF is worked out, so PF follows what was actually earned.
• The employee's UAN is held on their record.

Professional Tax: state by state

Professional Tax is a state levy. Not every state charges it, slabs differ between states, and some states vary the amount in particular months. The common mistake is applying the head office state's slab to everyone, including people who work elsewhere.

• PT should follow the state relevant to each employee, not a single company-wide rule.
• The deduction should appear on the payslip as its own line.
• Monthly PT totals should be easy to pull out for deposit and returns.

TDS on salary: a projection, not a percentage

TDS on salary is worked out on the employee's projected taxable income for the financial year, under the regime they choose, and spread across the remaining months. Payroll software should make that projection visible and keep it current:

• It should know each employee's regime and, under the old regime, their declarations.
• It should recalculate when salary changes mid-year, so the final months do not carry a large catch-up deduction.
• For mid-year joiners, it should allow for income and tax from a previous employer.
• Monthly TDS totals should reconcile with what you deposit and later report in your quarterly returns.

A missing or wrong PAN causes more TDS trouble than any calculation error, so the system should flag employees without one before payroll runs.

Inputs: attendance, leave and LWP

Most monthly payroll changes come from days not paid: leave beyond the balance, absences and mid-month joining or leaving. In a good set-up those inputs come from the systems where they are recorded, not from a list typed in at month-end.

• Approved leave beyond an employee's balance should already be marked as leave without pay when it reaches payroll.
• Attendance shortfalls, such as half days, should be shown to the payroll team as a suggestion they accept or adjust, not applied silently.
• Joining and exit dates from HR should prorate the first and last months.

The review step matters. Automatic inputs remove retyping, but a person should still confirm the month's deductions before salaries are released.

Controls: locked months and an audit trail

The single most valuable control in payroll software is a lock. Once salaries for a month are paid, that month's figures, payslips and reports should not change, even if the salary structure, a rule or an employee's record changes later. Corrections belong in a later month as arrears or recoveries, with a note.

Ask in every demo: if I change the salary split today, what happens to last month's payslips? The right answer is "nothing". Also check that salary revisions are kept as history with an effective date, so you can always see what someone was paid and why.

Payslips employees can read

A payslip is the one payroll document every employee sees. It should be generated from the payroll run, not copied into a template, and it should show:

• Company name and address, the pay month and the employee's details (name, code, designation, PAN and UAN where relevant).
• Each earnings component and the gross.
• Each deduction: employee PF, PT, TDS and any others.
• Days paid and any LWP.
• Net pay, ideally also in words.

Employees should be able to download their own payslips from a self-service page. Emailing payslips one by one wastes time and sooner or later sends one to the wrong person.

Reimbursements and other payouts

Expense claims, travel advances and incentives often sit outside payroll in a separate spreadsheet. That makes them easy to pay twice or not at all. Look for:

• Expense claims with receipts that go through an approval chain you define, for example HR, then the HR Director, then finance.
• A clear status for each claim: waiting, approved, paid.
• Business trips and their expenses approved and recorded, not explained after the fact.
• Incentives paid with their own payslip, so they are recorded and visible.

Questions to ask before you buy

1. Show me how PF changes when an employee takes three days of leave without pay.
2. Show me two employees in different states with different PT.
3. Show me how TDS is revised after a mid-year increment.
4. What happens to a paid month if I change the salary structure?
5. Where do attendance and approved leave come from, and who confirms the deduction?
6. How do employees get their payslips?
7. How are expense claims approved and paid?
8. What reports do I give my CA each month?

If you are still on spreadsheets, our checklist for moving payroll off spreadsheets covers data clean-up and a parallel run before you go live.

Where Techno IQ fits

Techno IQ is our payroll and finance product. It runs payroll with PF, PT and TDS worked out for each employee, takes attendance and approved leave, including LWP, as inputs, generates payslips employees download themselves and locks each month once it is marked paid. Reimbursements go through approval chains, and business trips and their expenses are approved by Finance and the CEO. Your CA still confirms the statutory set-up and keeps you current as rules change.

To see a month run from attendance to payslip on realistic data, book a demo of Techno IQ.