India Payroll Software: TDS, PF and ESI Calculations Simplified

Indian payroll has more moving parts than most. Between tax deducted at source, the Provident Fund, Employee State Insurance, and professional tax that changes from state to state, there is a lot to get right. This guide explains each component and what good India payroll software should do with it.

The components of Indian payroll

TDS — tax deducted at source. This is income tax withheld from salary. India now runs two regimes in parallel: an older regime with six slabs and a range of exemptions, and a newer regime with seven slabs, lower thresholds, and fewer exemptions. Employees choose which regime applies to them, and payroll software has to handle both and apply the employee's choice.

Provident Fund — PF. The Provident Fund is a retirement saving scheme: broadly 12% from the employee and 12% from the employer, calculated on basic pay plus dearness allowance. The employer's contribution is subject to a wage cap. Part of the employer's 12% is directed to the Employees' Pension Scheme.

Employee State Insurance — ESI. ESI is a health and social security scheme that applies to employees earning up to ₹21,000 per month — roughly 0.75% from the employee and 3.25% from the employer. Above that threshold, ESI does not apply.

Professional tax. This is a state-level tax. It exists in some states and not others, and where it exists the amount varies, capped at ₹2,500 per year. Software has to know the rule for the relevant state.

Indian payroll is not one calculation. It is TDS plus PF plus ESI plus professional tax — each with its own threshold and its own filing.

What good India payroll software does

It supports both tax regimes and applies the one the employee has chosen. It calculates PF correctly, including the employer wage cap and the split into the pension scheme. It applies ESI only where the salary threshold is met. It applies the right professional tax for the employee's state. And it makes filing clear — TDS through TRACES, PF through the EPFO portal, ESI through the ESIC portal.

How Mellow handles India

Mellow calculates Indian payroll with all four components: TDS under both the old and new regimes, PF with the employer cap, ESI where the threshold applies, and state professional tax. Payslips are produced in rupees showing the full breakdown.

Mellow does not file directly with the Indian authorities — it calculates accurately and provides a guide for submitting TDS, PF, and ESI returns through the respective government portals. The hard part, the calculation, is done; the filing stays with you.

Alongside payroll, Indian businesses get the full HR platform from ₹420 per employee per month.

The bottom line

Indian payroll rewards software that genuinely understands it. Get TDS, PF, ESI, and professional tax right and the rest follows. Mellow handles all four. See Mellow pricing or read about running payroll in India from the UK.