What Indian payroll software actually has to compute
PF, ESI, professional tax, gratuity and TDS are five different rulebooks with five different ceilings. Here is the arithmetic every payroll run in India has to get right.
Every payroll vendor in India says it “handles compliance”. Very few explain what that sentence contains, which makes it hard to tell a product that computes the rules from one that gives you a spreadsheet with the right column headings.
So here is the actual list. If you are buying payroll software, these are the things to ask about by name.
1. Provident Fund, and its ceiling
EPF is computed on wages, and the statutory wage ceiling is ₹15,000 a month. Above that, the employer’s obligation does not keep scaling — which is why two people on very different salaries can have identical PF lines, and why a system that simply applies a percentage to gross is wrong.
The output is not just a number on a payslip. It is the ECR file, the electronic challan-cum-return uploaded to the EPFO portal. A product that computes PF but cannot produce the ECR has handed you the easy half.
2. ESI, and a different ceiling
ESI applies up to a gross of ₹21,000 a month — a different threshold, with different rates, and the one that most often surprises people because it is an eligibility ceiling rather than a cap on the computation. An employee crossing it mid-year does not simply pay less; they come out of the scheme at the end of the contribution period.
The filing artefact here is Form 6, the ESI register.
3. Professional tax, which is eight different rulebooks
This is where “handles Indian compliance” usually starts to fray, because professional tax is a state levy. Maharashtra, Karnataka, West Bengal, Telangana, Andhra Pradesh, Gujarat, Tamil Nadu and Kerala each have their own slabs, and some file monthly while others file half-yearly.
If you employ people in three states you have three sets of slabs and three filing calendars, and a product that stores one PT rate per company has not understood the problem.
4. Gratuity, which is a formula and two limits
Gratuity is 15/26 — fifteen days’ wages for each completed year, taking a month as twenty-six working days. It becomes payable after five years of continuous service, and the statutory exemption is capped at ₹20 lakh.
Three separate things to get wrong: the divisor, the eligibility rule, and the cap. All three show up in a full-and-final settlement, which is exactly when an error is most visible and least forgivable, because somebody is leaving and has already done the sum themselves.
5. TDS, which is the one that moves
Income tax deducted at source is the hardest of the five, and it is hard for a reason that has nothing to do with software: the rules change.
A payroll system has to carry both the old and new regimes, because the employee chooses. It has to apply the 87A rebate, then surcharge on higher incomes, then cess on top of that. And it has to true up monthly — an employee who declares an investment in December changes what should have been deducted in April, and the remaining months have to absorb the difference rather than the employee getting a shock in March.
The year-end artefacts are Form 24Q, the quarterly e-TDS return, and Form 16, the certificate each employee receives.
The part nobody puts on a feature list
Two things sit underneath all five and are invisible until they are wrong.
Attendance has to be settled before payroll runs. Loss of pay, leave without pay and unpaid half-days all change the wage the five computations above are applied to. A payroll product that is not reading the same attendance register your supervisors are correcting is computing from a number somebody will dispute.
The money has to leave the bank. The end of a payroll run is a NEFT file the bank will accept, not a report. A product that computes perfectly and then expects you to re-key forty salary payments has stopped one step short of the thing you actually needed.
Where we are
Comsky HRMS is in early access, and it is worth being precise about which of the above is settled and which is not.
PF with the ECR file, ESI with Form 6, gratuity, bonus and the bank NEFT file are built and running. The compliance calendar and the statutory registers are there.
TDS, the e-TDS Form 24Q file and Form 16 Part B are built but are not yet verified against TRACES, and surcharge marginal relief is not implemented. Professional tax covers all eight states listed above, but the Tamil Nadu and Kerala half-yearly returns are a known gap. The Labour Codes’ 50% wage rule has a setting but is not applied by the computation engine.
We would rather you knew which of those were which before a conversation than after one. If you are running payroll in India today and any of the five above is currently a spreadsheet, ask us for early access and tell us how many people you pay — the answer changes which half of this matters to you.
This post describes statutory requirements as our payroll engine implements them. It is not tax advice, the rules change, and your own payroll team should check any figure before it is filed.