Accounting & Payroll · Payroll & Compliance Outsourcing
Payroll Processing & Salary Computation
Payroll is not a spreadsheet exercise.
Chartered Accountants · Chennai · Hyderabad · Bangalore · Dubai · Since 1986
Payroll is not a spreadsheet exercise. It is a statutory compliance function that touches Income Tax, Provident Fund, ESI, Professional Tax, and Labour law — simultaneously, every single month. One missed TDS deposit, one wrong regime election under Section 192, one ECR filed late to EPFO: each carries a financial penalty and, for directors and employers, personal liability. At PNPC Global, we have managed payroll compliance for businesses across India since 1986. We do not process salary runs. We manage the end-to-end statutory obligation — so your HR team gets clean payslips, your employees get accurate Form 16s, and your company faces zero avoidable notices.
What it costs
No hidden charges. The exact figure is set in your engagement letter.
Payroll processing is the monthly statutory function of computing gross-to-net salary for each employee, deducting the correct statutory amounts — TDS under Section 192 of the Income Tax Act 1961, employee Provident Fund contribution at 12% of basic+DA, ESI where applicable, and Professional Tax at the applicable state slab — and disbursing net salary. It also means depositing each statutory deduction with the correct authority by the prescribed due date, filing the associated returns, and issuing Form 16 to every employee annually. In India, these obligations do not sit in one place: TDS on salary is governed by the Income Tax Act, EPF by the EPF & MP Act 1952, ESI by the ESI Act 1948, and Professional Tax by individual state legislations. A payroll function that is compliant in Tamil Nadu may still be non-compliant for a Karnataka employee's Professional Tax. Outsourcing to a CA firm ensures uniform statutory accuracy across every state in which you have employees.
When outsourced payroll makes business sense
Headcount of 5 or more employees, across multiple states with different Professional Tax rules
Any employee whose income crosses the basic exemption threshold — TDS computation under old vs new regime becomes mandatory
Company in the growth phase — internal HR exists but lacks statutory tax expertise for Section 192 computations
Company has crossed the EPF threshold of 20 employees or wishes to voluntarily register earlier
Any employee earns ₹21,000 or less per month — ESI becomes applicable and must be correctly identified
Annual audit season is approaching and the auditor finds payroll records in disarray
Post-funding: investors or acquirers will conduct HR/statutory due diligence on payroll compliance
When in-house payroll is feasible
Fewer than 5 employees, all in one state, none crossing the basic exemption threshold — a simple payroll tool may suffice initially
Founding team with no salary drawn yet — payroll compliance is not yet triggered
Sole proprietorship or partnership with no employees other than the owner(s) — owners are not employees; TDS on salary does not apply
| Compliance Dimension | In-House Payroll (HR/Finance Team) | Outsourced to Payroll Software Only | Outsourced to PNPC CA Firm |
|---|---|---|---|
| Section 192 TDS — old vs new regime | Prone to regime error without tax expertise; employee declarations often not cross-checked | Software computes per declarations entered; no advisory on which regime is beneficial | CA reviews each employee's profile; recommends optimal regime; validates declarations |
| PF computation accuracy | 12% of basic+DA — frequently miscalculated when allowance structures are complex | Correct if payroll inputs are correct; no review of allowance structure design | CA reviews salary structure to ensure PF base is correctly defined and compliant |
| ESI eligibility tracking | ₹21,000 threshold breaches often missed mid-year after increments | Threshold tracking depends on correct salary updates; no mid-year advisory | Proactive flag when salary approaches ₹21,000; ESI cut-off handled correctly |
| Professional Tax — multi-state | Different slabs per state; error rate high without dedicated tracking | Software supports PT slabs only if correctly configured per state | CA maintains state-specific PT registers; applies correct slabs for each employee location |
| Monthly deposit due dates | PF/ESI by 15th, TDS by 7th — frequently missed without a dedicated tracker | Reminders provided; execution remains manual | PNPC initiates deposits before due dates; tracks confirmation challan for each payment |
| Form 16 issuance | Generated but frequently issued late or with errors; Part A often missed | Generated by software; Part A must be downloaded from TRACES | Complete Form 16 (Part A from TRACES + Part B) issued by 15 June every year; employee queries handled |
| Quarterly TDS returns (24Q) | Often delayed; errors in mapping salary to correct quarters | Filed if the person operating the software is trained on TRACES | PNPC files 24Q on schedule; handles TRACES corrections independently |
| Labour law and future Code compliance | Rarely reviewed until an audit or inspection arrives | Software does not provide legal advisory | Ongoing advisory on Labour Code applicability as rules are notified state by state |
| Statutory notices and queries | Internal team handles — often without the required expertise | Software vendor has no role in responding to statutory notices | CA responds directly to EPF, ESIC, and Income Tax notices on payroll matters |
The right model depends on your headcount, geographic spread, and internal HR capability. For companies with over 20 employees in more than one state, fully outsourced CA-managed payroll is almost always the cost-efficient choice when notices, corrections, and penalties are factored in.
| # | Monthly Payroll Cycle Step | What PNPC Does (Not Just What the Software Does) | Due Date / Trigger |
|---|---|---|---|
| 1 | Employee onboarding and investment declaration | At joining, each employee submits Form 12BB declaring proposed investments (80C, 80D, HRA, etc.) and chooses old or new tax regime for Section 192 TDS computation. PNPC reviews declarations for reasonableness; advises employees where declarations are clearly inconsistent with their tax profile. | On joining; renewed each April for existing employees |
| 2 | Gross-to-net salary computation | PNPC computes taxable salary for each employee: basic, HRA, special allowance, LTA, and reimbursements segregated. PF deduction at 12% of basic+DA (employee and employer share). ESI at 0.75% (employee) for those earning ≤₹21,000/month. Professional Tax at applicable state slab. TDS on projected annual income under elected regime — recomputed monthly to spread the annual TDS obligation evenly. | By the 25th of each month for month-end payroll |
| 3 | Payslip generation and salary disbursement support | Itemised payslip for each employee showing all earnings, statutory deductions, and employer contributions. Salary transfer statement for your bank. Each payslip is retained in PNPC's records for the statutory retention period. | By the last day of the month or your payroll date |
| 4 | PF / ESI deposit | Monthly ECR (Electronic Challan cum Return) prepared and uploaded to the EPFO unified portal; employer + employee PF contributions remitted. ESI contributions (employer 3.25% + employee 0.75%) deposited to ESIC. Both by the 15th of the following month. Challan copies archived. | 15th of the following month — no grace |
| 5 | TDS deposit | TDS on salary (Section 192) deposited via Challan ITNS 281 to the government by the 7th of the following month (30th April for March deductions). BSR code and challan details captured for 24Q filing. | 7th of the following month (30th April for March) |
| 6 | Professional Tax deposit and return | PT deducted from employee salary and employer PT (where applicable) deposited as per state schedule. Maharashtra: monthly by the last day. Karnataka: monthly by 20th. Tamil Nadu: half-yearly. Returns filed per state timeline. PNPC maintains a separate PT compliance calendar per state. | Per state schedule — varies |
| 7 | Quarterly TDS return — Form 24Q | Form 24Q (TDS on salary) filed to TRACES within the prescribed period — 31 July, 31 October, 31 January, and 31 May for each quarter. Quarter 4 (January–March) includes Annexure II: the final tax computation for every employee. This is the master data from which Form 16 is generated. | Quarterly — 31 Jul / 31 Oct / 31 Jan / 31 May |
| 8 | Year-end reconciliation and Form 16 issuance | After Q4 24Q is accepted on TRACES, PNPC downloads the TRACES-generated Part A of Form 16 for each employee. Part B (detailed computation of income, deductions, and tax) is prepared by PNPC and combined with Part A. Form 16 issued to every employee by 15 June. Employees who need CA assistance filing their personal ITR are referred to PNPC's ITR filing service. | Form 16 by 15 June every year |
For December and March payrolls — the mid-year and year-end points — PNPC re-runs TDS projections for every employee to catch regime mismatch, unexpected increments, or perquisite additions. This prevents large balancing deductions in March and the resulting employee complaints.
PAN Card — mandatory for TDS under Section 192; without PAN, TDS applies at 20% regardless of actual income
Aadhaar Card — required for UAN allotment under EPFO
Bank account details — account number, IFSC, bank name for salary credit and Form 16
Previous employer's Form 16 or Form 12B — required to aggregate salary income from earlier in the same financial year to compute correct TDS for the balance months
Form 12BB — investment declaration form; employee declares 80C investments, HRA, home loan interest, and other exemptions, and selects old or new regime
Date of birth — for ESI eligibility and PF scheme applicability
Previous employer's UAN — if the employee has an existing PF account, for KYC-linked transfer
TAN (Tax Deduction Account Number) — mandatory for depositing TDS on salary; apply via Form 49B if not yet obtained
PF registration number — issued by EPFO after threshold of 20 employees is crossed or voluntary registration
ESI employer code — issued by ESIC after registration
Professional Tax registration certificate (PTRC) — per state; employer registers separately in each state where employees are located
Authorised signatory details — the person who signs payroll-related statutory returns and forms
Payroll cut-off date and salary disbursement date — PNPC aligns the payroll cycle to your operational calendar
Attendance and leave records — including loss of pay days, if any, for the month
Variable pay components — performance bonus, overtime, incentives — confirmed figures for the month
New joiners: offer letter confirming salary structure + documents listed above
Exits: last working date, full-and-final settlement details, any gratuity entitlement
Mid-year increment letters — triggers TDS recomputation for balance months
Confirmation of any perquisites provided — car, accommodation, telephone — for Form 12BA reporting under Section 192
| Phase | What Changes Statutorily | PNPC Advisory Action | Risk If Not Addressed |
|---|---|---|---|
| First hire (1–19 employees) | TDS on salary triggers from first rupee of salary crossing the basic exemption limit. No PF/ESI mandatory yet (thresholds not met), but voluntary PF registration is permitted. | PNPC sets up Section 192 computation framework, advises on salary structure design to optimise take-home within compliance, and sets up TDS deposit and 24Q filing cycle. | Incorrect Section 192 computation from the start. TDS shortfall creates interest and penalty. Poor salary structure cannot be revised without employee renegotiation. |
| PF threshold crossed (20 employees) | EPF & MP Act 1952 applies mandatorily. Employer must register with EPFO within 30 days. Monthly ECR upload and deposit by 15th. Each employee gets a UAN. | PNPC handles EPFO registration, UAN generation, and first ECR filing. Retroactive applicability risk assessed — some businesses owe PF for the period before formal registration. | Late registration: EPFO can demand retroactive contributions + interest + damages (u/s 14B — up to 25% of arrears). Directors personally liable. |
| ESI threshold crossed (10 employees in most states) | ESI Act 1948 applies. Employees earning ≤₹21,000/month are covered. Employer contribution 3.25%, employee 0.75%. | PNPC identifies ESI-eligible employees, registers with ESIC, generates Temporary Identification Numbers, and incorporates ESI into the monthly payroll cycle. | Unregistered liability: ESIC can claim arrears + interest. Employees who suffered illness or injury in the non-compliant period are unprotected — employer bears the risk. |
| Employee salary crosses ₹21,000/month mid-year (ESI exit) | Employee becomes ESI-ineligible from the contribution period following the wage revision. However, they remain covered for the full ongoing contribution period even after the revision. | PNPC flags the transition, stops ESI deduction at the correct point, and moves the employee to the correct tax-exempt category — avoiding over-deduction or under-coverage. | Continuing to deduct ESI after exemption creates incorrect employee records and potential ESIC query. Stopping too early creates a coverage gap. |
| Regime change during year (old vs new — Section 192) | Employees may switch tax regime only once during the financial year (mid-year switch permitted by CBDT). Switching regime midyear changes TDS computation for all remaining months. | PNPC recomputes the TDS obligation for balance months immediately when a regime switch is declared. Ensures no large balancing deduction in March. | Uncorrected regime mismatch means the employee receives insufficient net salary through the year and faces a large March deduction — generating complaints and sometimes Form 16 disputes. |
| Annual Form 16 and ITR season (June–July each year) | Form 16 must be issued to every employee by 15 June (Part A from TRACES + Part B). Employees use it to file their personal ITR by 31 July. | PNPC downloads TRACES Part A, prepares Part B, and issues Form 16 to every employee by 15 June. Queries from employees on their ITR are handled by PNPC's ITR advisory service. | Late or incorrect Form 16 triggers employee disputes, ITR filing errors, and potential notices to the employer for defects in 24Q data. |
| Full-and-final settlement for exiting employee | Gratuity (if 5+ years of service) is exempt up to ₹20 lakh under Section 10(10). Leave encashment at exit taxable under Section 17. Notice pay and other settlement amounts may be taxable. TDS must be deducted on taxable components before payment. | PNPC computes the correct TDS on the full-and-final settlement, advises on gratuity exemption eligibility, and ensures the exit is correctly reflected in the next 24Q. | Incorrect TDS at exit creates a TDS mismatch between employer 24Q and employee ITR — generating notices to both. |
What is the difference between old regime and new regime for TDS on salary — and which one should my employee choose?
Under Section 192, the employer deducts TDS on projected annual salary using whichever tax regime the employee selects. The old regime (pre-2020 slabs) allows deductions and exemptions — 80C investments, HRA, home loan interest, standard deduction of ₹50,000. The new regime (introduced by the Finance Act 2020, default from FY 2023-24) has lower slab rates but disallows most deductions except the standard deduction. Employees with significant 80C investments, HRA claims, and home loan interest outgo generally pay lower tax under the old regime. Employees with no investments or living in owned accommodation with no loan often benefit from the new regime. The choice must be declared in Form 12BB at the start of the year and can be changed once during the year.
My employee has not submitted PAN. What TDS rate applies to their salary?
If an employee fails to furnish their PAN, TDS on salary must be deducted at the higher of: the rate under the applicable tax slab, or 20% under Section 206AA. For most employees, this means a flat 20% TDS regardless of actual income — including employees who are below the basic exemption limit. The employer cannot use the basic exemption if PAN is not available. This is a rigid statutory rule with no exceptions.
Does GST apply to salaries paid to employees?
No. Salaries paid to employees under a contract of service are entirely outside the scope of GST. Employee-employer relationship is specifically excluded from the definition of 'supply' under the CGST Act 2017. GST applies to services supplied by one independent person or entity to another — not to salary. This is a clear statutory position and should not be confused with GST applicability on contract labour bills or professional fees paid to freelancers, which are separate transactions.
What are the due dates for PF, ESI, and TDS deposits?
Provident Fund (employee + employer contribution): deposit by the 15th of the following month. ESI (employee + employer contribution): deposit by the 15th of the following month. TDS on salary (Section 192): deposit by the 7th of the following month; for the month of March, the deadline is 30th April. These are absolute deadlines — there is no grace period. Interest on late PF/ESI deposits runs at 12% per annum; damages under PF Act Section 14B can add up to 25% of arrears. TDS interest under Section 201 runs at 1.5% per month from the date of deduction.
What is Form 24Q and when is it due?
Form 24Q is the quarterly TDS return for tax deducted at source on salary (Section 192). It is filed on the TRACES portal and contains, for each quarter, a challan detail sheet (deposits made) and a deductee annexure (employee-wise TDS details). Due dates: Q1 (April–June) by 31 July; Q2 (July–September) by 31 October; Q3 (October–December) by 31 January; Q4 (January–March) by 31 May. The Q4 return includes Annexure II — the consolidated tax computation for every employee for the full year — from which Form 16 is generated.
By when must Form 16 be issued to employees?
Form 16 must be issued by the employer to every employee by 15 June of the year following the financial year. Form 16 has two parts: Part A is generated by the employer from TRACES and contains the TDS deducted and deposited quarter-wise. Part B is prepared by the employer and contains the detailed salary breakup, exemptions, deductions, and tax computation. Both parts must be signed (or digitally signed) and issued together. Employees need Form 16 to file their personal ITR, typically due by 31 July.
When does EPF registration become mandatory for my company?
EPF registration becomes mandatory under the Employees' Provident Funds and Miscellaneous Provisions Act 1952 when your establishment employs 20 or more persons. This threshold includes contract workers and workers engaged through a contractor — not just direct employees. Once the threshold is crossed, the employer must register within 30 days. Voluntary registration is permitted even before 20 employees. Once covered, coverage continues even if headcount later falls below 20.
What is the EPF contribution rate — and is there an employer share over and above the employee deduction?
Yes. The EPF contribution is 12% of basic salary + dearness allowance from the employee's salary (deducted from gross), AND an equal 12% employer contribution paid by the company over and above the net salary. The employer's 12% is split: 8.33% goes to the Employee Pension Scheme (EPS) up to a ceiling of ₹15,000 basic (i.e., a maximum of ₹1,250/month to EPS), and the remaining goes to the EPF account. An additional 0.5% is contributed by the employer to EDLI (Employee Deposit Linked Insurance) and 0.01% as administrative charges. The total employer cost per employee for PF is approximately 13.61% of basic+DA — a meaningful payroll cost that should be factored into CTC design.
Does Professional Tax apply in all Indian states?
No. Professional Tax is a state-level levy and is not applicable in all states. States that levy Professional Tax include Karnataka, Maharashtra, West Bengal, Tamil Nadu, Telangana, Andhra Pradesh, Gujarat, Madhya Pradesh, and Assam, among others. States such as Delhi, Haryana, Rajasthan, and Uttar Pradesh do not levy Professional Tax. The Constitution caps Professional Tax at ₹2,500 per year per person. Slabs and payment frequencies differ by state — Karnataka requires monthly employer registration (PTRC) and deposit; Tamil Nadu has a half-yearly cycle. Employers with employees in multiple states must maintain separate PT registrations and comply with each state's schedule independently.
What happens when an employee leaves — how is the full-and-final settlement handled for TDS?
At the time of full-and-final (FnF) settlement, the employer must compute TDS on all taxable components of the settlement: balance salary, bonus, leave encashment (taxable at exit, unlike during service), and any other taxable payments. Gratuity is exempt under Section 10(10) up to ₹20 lakh if the employee has completed five years of service. Notice pay retained (where the employee does not serve notice) has a different tax treatment than notice pay received (where the employer waives notice). TDS must be deducted on the taxable amount before the FnF is credited, and reported in the next 24Q.
Can we pay directors as employees — and if so, what are the TDS implications?
Yes, executive directors who are in whole-time employment with the company receive remuneration as salary, which is subject to TDS under Section 192 in the same way as any other employee. Non-executive or independent directors receive sitting fees and/or commission — these are not salary; TDS applies under Section 194J (professional fees) at 10%. The distinction matters: salary remuneration goes into Form 24Q (24Q TDS return); director commission/sitting fees go into Form 26Q. Mixing them up creates a mismatch between the company's TDS returns and the director's ITR.
What are the penalties for late EPF deposits?
Under the EPF & MP Act 1952, late deposit of PF contributions attracts: simple interest at 12% per annum on the amount in arrears (Section 7Q), plus damages under Section 14B at rates ranging from 5% (delay up to 2 months) to 25% (delay exceeding 6 months) of the arrears. Additionally, the employer (typically the MD/director or owner) is personally liable for prosecution under Section 14A — a criminal provision carrying imprisonment of up to 3 years and/or fine. There is no ceiling on the total amount of interest and damages.
What is the difference between payroll processing by a CA firm versus a payroll software subscription?
A payroll software processes the inputs you give it and produces outputs based on configured rules. It does not know that your Section 192 computation is wrong because an employee changed their regime mid-year. It does not catch that a salary increment pushed an employee above the ESI threshold. It does not flag that a director's perquisite needs to be added to Form 12BA. It does not respond to the EPFO notice. A CA firm does all of these things — the software is our tool, not the service. At PNPC, payroll is a CA-supervised compliance function, not a data-entry task.
What does PNPC need from us every month to run payroll?
Each month, we need: attendance and leave data (or confirmation that there are no leave-without-pay deductions), variable pay amounts confirmed (bonus, incentives, overtime, if any), details of any new joiners (with the onboarding documents listed in our checklist) or exits (last working date and FnF components), and any change in salary or structure (increment letters). Everything else — TDS computation, PF/ESI deposit, PT, payslip generation, 24Q filing — is our responsibility. We send you a monthly inputs request template three working days before payroll cut-off.
Can PNPC handle payroll for employees across Chennai, Bangalore, Hyderabad, and UAE?
Yes. PNPC has operating offices in Chennai, Bangalore, Hyderabad, and Dubai. Indian payroll — TDS, PF, ESI, and state-specific Professional Tax for Tamil Nadu, Karnataka, and Telangana — is managed from our India offices. For businesses with employees in the UAE, PNPC's Dubai office handles UAE payroll under the WPS (Wage Protection System), UAE gratuity computation (end-of-service benefits under UAE Labour Law), and UAE CT payroll reporting requirements. For businesses operating in both India and UAE — including Indian companies with a UAE subsidiary or vice versa — we manage payroll for both entities under a single engagement.
| Feature | Payroll Software (Self-Run) | Generic Payroll BPO | PNPC CA Firm |
|---|---|---|---|
| TDS regime advisory (old vs new) | No — software computes but does not advise | Typically not — process-level only | Yes — CA reviews each employee's profile and recommends |
| EPF/ESI registration and threshold monitoring | No — assumes you manage registrations | Registration assist only; no ongoing threshold watch | Yes — proactive threshold monitoring; registration handled |
| Multi-state Professional Tax | Configurable but user-maintained | Covered but generic; no CA review | CA-maintained per state; dedicated PT compliance calendar |
| FnF settlement TDS computation | Manual — error-prone without tax expertise | Processed; advisory limited | CA-computed; regime, gratuity exemption, and notice pay correctly handled |
| Form 24Q filing and TRACES corrections | User-filed; corrections require expertise | Filed; corrections at extra cost | Filed and corrected by CA; Part A reconciled before Form 16 issuance |
| Response to EPFO / ESIC / IT notices | User's responsibility | Extra-engagement; may refer out | CA responds directly; covered within payroll retainer |
| Integration with company audit and ITR-6 | None | Data shared; no CA coordination | Payroll data flows directly into statutory audit and corporate ITR — single CA engagement |
| India-UAE payroll coordination | India or UAE — not both | India only, typically | Both — Chennai/Bangalore/Hyderabad + Dubai offices in one engagement |
What the PNPC package includes
- 01
Monthly gross-to-net salary computation for all employees — old and new regime under Section 192
- 02
Monthly payslip generation and salary transfer statement
- 03
PF (12%) employee and employer contribution computation and monthly ECR filing
- 04
ESI contribution computation and monthly deposit for eligible employees (≤₹21,000/month)
- 05
Professional Tax deduction and deposit for all states in which employees are located
- 06
TDS on salary (Section 192) monthly deposit by the 7th — Challan ITNS 281
- 07
Quarterly Form 24Q TDS returns — all four quarters filed on time
- 08
Year-end TDS reconciliation and Form 16 (Part A + Part B) issued to every employee by 15 June
- 09
Mid-year TDS recomputation at bonus, increment, or regime change events
- 10
Full-and-final settlement TDS computation for exiting employees
- 11
EPFO and ESIC registration when thresholds are crossed
- 12
Response to EPF, ESIC, and Income Tax payroll-related notices
- 13
Monthly inputs template and PNPC client portal access for document upload
- 14
Payroll data integration with your annual statutory audit and ITR-6 (if audit client of PNPC)
Speak with a PNPC Chartered Accountant about your payroll compliance. Not a payroll software sales representative. A practising CA who will review your current TDS structure, identify any compliance gaps, and tell you exactly what outsourcing to PNPC will cost — before any commitment.
Jurisdictions
Chennai · Bangalore · Hyderabad
Dubai · Al Karama
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