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India Payroll Compliance and Calculation, Demystified

Every Indian payslip is the output of interlocking rules: PF at 12% of basic wages on both sides, ESIC at 3.25% from the employer when gross pay sits inside the eligibility band, TDS under whichever tax regime the employee elected, professional tax by state, and gratuity quietly accruing at 4.81% of basic. This page shows how the computation works, and how our desk runs it for you under our Bengaluru entity.

PF at 12% both sides, employer ESIC at 3.25% in band, TDS by regime, PT by state, gratuity accruing at 4.81%. Here is how the math fits together, and how we run it.

Speak to sales EOR vs entity, in detail

G2 4.8 / 5 on G2, from companies employing teams in India through us.

Teams building in India. First hire to full team.

Learning the computation yourself versus letting our desk own it.

Six places the arithmetic bites, and who absorbs each one.

In-house computation

Computation on our desk

PF wage base decisions
You interpret what counts as basic wages for the 12% contribution and defend that reading later.
Our templates apply settled positions reviewed against current rulings.
ESIC eligibility tracking
Each raise can move an employee across the gross-pay ceiling, changing contributions mid-year with transition rules.
Band crossings are caught in review and handled per the transition provisions.
Old regime versus new regime TDS
Someone maintains two parallel tax computations and each employee's declared election.
Elections, declarations and proofs are collected and applied by our team.
Gratuity provisioning
The 4.81% accrual is easy to ignore until a five-year employee resigns and the liability is real.
Accrual is provisioned from day one and visible in your reporting.
Professional tax variance
Monthly in Karnataka, half-yearly in Tamil Nadu, absent in Delhi: one team tracks it all.
Our state matrix applies the right slab and date per employee automatically.
The cost of computing wrong
Under-deduction invites interest at 12% and damages up to 25%, plus employee grievances.
Computation risk lives on our registration, backed by a second reviewer.

In-house computation
PF wage base decisions You interpret what counts as basic wages for the 12% contribution and defend that reading later.
ESIC eligibility tracking Each raise can move an employee across the gross-pay ceiling, changing contributions mid-year with transition rules.
Old regime versus new regime TDS Someone maintains two parallel tax computations and each employee's declared election.
Gratuity provisioning The 4.81% accrual is easy to ignore until a five-year employee resigns and the liability is real.
Professional tax variance Monthly in Karnataka, half-yearly in Tamil Nadu, absent in Delhi: one team tracks it all.
The cost of computing wrong Under-deduction invites interest at 12% and damages up to 25%, plus employee grievances.

Computation on our desk
PF wage base decisions Our templates apply settled positions reviewed against current rulings.
ESIC eligibility tracking Band crossings are caught in review and handled per the transition provisions.
Old regime versus new regime TDS Elections, declarations and proofs are collected and applied by our team.
Gratuity provisioning Accrual is provisioned from day one and visible in your reporting.
Professional tax variance Our state matrix applies the right slab and date per employee automatically.
The cost of computing wrong Computation risk lives on our registration, backed by a second reviewer.
Month 1
Incorporation filings drafted and submitted
Month 2
Company registered by the MCA
Month 3
Tax identifiers PAN, TAN, GSTIN arrive
Month 4
Employer PF and ESIC codes activated
Month 5
Payroll engine configured and tested
Month 6
First computed payslip finally possible

A computation error becomes a penalty the day it files.

Under-deducted PF or late-deposited TDS carries the same statutory teeth: 12% annual interest and damages stepping up to 25% of what is owed.

When we compute and remit under our registration, an arithmetic slip is ours to fix and ours to answer for, never yours.

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The cost curve of one wrong or missed remittance Interest and damages, compounding daily
₹6,200 Day 1
₹41,500 Day 30
₹1,84,000 Day 90
₹3,12,000 Day 180
Assumes a small wage bill and one error left uncorrected. Bigger numbers scale the exposure linearly.
Who explains the error to the department
Computed on your registration You
Computed on Versatile's registration Versatile

This sub-page pairs with the flexible benefits guide: one covers the mandatory math, the other the optional structuring. See the full stack applied to real salaries in the EOR versus entity calculator whenever you like.

The computation stack, and whose desk each layer sits on.

You decide what people earn. Our desk turns that number into a lawful payslip: contributions, taxes, accruals and state levies all applied and documented.

You run

  • Gross compensation decisions
  • Increment timing and amounts
  • Approval of the monthly run

We handle

  • PF and ESIC computation per employee
  • TDS under each employee's elected regime
  • Gratuity accrual and PT by state
  • Documentation behind every figure

You run
  • Fix the gross salary
  • Approve each cycle
  • Decide increments
  • Own the budget

We handle
  • Split basic and allowances
  • Apply the 12% PF both sides
  • Check the ESIC band monthly
  • Run regime-correct TDS
  • Accrue gratuity at 4.81%
  • Apply the right state PT slab

When something happens in India, it is ours.
An employee disputes a deduction We show the working
A ceiling or slab is revised We recompute from the notification
An auditor samples a payslip Our records answer it

A named compliance manager owns your account. Not a queue, not a chatbot, one person who already knows your headcount and your last filing.

Account managerMedian first reply 4 to 6 hours
Recruitment coordinatorBrief to shortlist 9 days
Finance associateFilings on time 8 / 8

Every payslip carries its working.

Behind each figure sits a computation sheet: wage base, rate applied, regime elected, slab used. Disputes end quickly when the arithmetic is visible.

Ceilings and bands are watched monthly.

ESIC eligibility, PF treatment and PT slabs all move with pay changes and notifications. Our review step exists precisely to catch the crossings.

Both tax regimes, run correctly.

Employees elect old or new regime and our desk maintains the declarations, proofs and parallel computations that election requires.

The mandatory math is only half the page.

Structuring allowances to legally improve take-home is the other half, covered in our flexible benefits guide alongside this one.

Every payslip carries its working.

Behind each figure sits a computation sheet: wage base, rate applied, regime elected, slab used. Disputes end quickly when the arithmetic is visible.

A number without working is just an assertion.

Ceilings and bands are watched monthly.

ESIC eligibility, PF treatment and PT slabs all move with pay changes and notifications. Our review step exists precisely to catch the crossings.

Most compliance failures are missed transitions, not bad intent.

Both tax regimes, run correctly.

Employees elect old or new regime and our desk maintains the declarations, proofs and parallel computations that election requires.

Regime handling is where DIY payroll quietly breaks.

Moving someone across

Inheriting a payroll someone else computed? We reconcile it.

Takeovers begin with a reconciliation of prior computations, so historic PF bases, TDS positions and accruals are verified before our first cycle runs, and errors surface early instead of at audit.

Tenure Kept
Gratuity clock Kept
PF and UAN Continuous
Payroll gap 0 days

The largest reconciliation we ran covered 200 employee records in one pass.

Supporting evidence

The entity behind the arithmetic is checkable.

Computations run at Foo Falcon Technologies Pvt Ltd, Bengaluru, on the register since 2022.

  • Incorporation
  • GST
  • EPFO code
  • ESIC
  • Shops and Establishments
  • PAN and TAN
  • Udyam MSME
What we verify
  • Incorporation Ministry of Corporate Affairs
  • GST Goods and Services Tax
  • EPFO code Employees Provident Fund Organisation
  • ESIC Ministry of Labour and Employment
  • Shops and Establishments Government of Karnataka
  • PAN and TAN Income Tax Department
  • Udyam MSME Government of India

Email us for the certificate and receive the PDF back, nothing else attached.

200

employee records reconciled and recomputed in a single takeover pass

33

clean monthly computation cycles in a row for one client, 26 months running

5 days

from offer to a first correctly computed payslip accruing

G2 4.8 / 5 on G2, from companies employing teams in India through us.

G2 4.8 / 5 on G2, from companies employing through us.

Clients on trusting the math to our desk.

Operators who used to check every payslip line describe what changed after the handover.

Video
Bharath Rasoi KS Rajeshwari Founder, Bharath Rasoi
Video
Open Theatre Anand Raj Founder, Open Theatre
Abid Hassan Verified client
Sensibull
“They moved fast and took the whole compliance side off my plate. For a founder making an early India hire, that is exactly what you want.”
Abid Hassan Founder and CEO, Sensibull
Via G2
Moonshot
“Every option was either 'set up your own entity' or a platform that quotes a great price then hits you with add-ons. Versatile was the one that actually made it simple. First payroll ran on time. No scramble.”
Angad S. Co-Founder, Moonshot
Via G2
Digital Marketing Agency
“Contracts, PF, ESI, TDS and payroll all in one place. Invoicing in USD meant zero exchange rate surprises. The compliance rigour is genuinely reassuring.”
Vedant T. Founder, Digital Marketing Agency
Via G2
Design Studio
“Setting up in a new country can get messy fast, but their India EOR made onboarding feel easy. The team is responsive, clear, and great to work with.”
Setu C. Studio Owner, Design Studio
Via G2
US Startup
“We used Versatile to hire our first employee in India after months of putting it off because the compliance side seemed like a mess. They walked us through it and now we don't think about it.”
Verified US Founder First-time Founder, US Startup
Via G2
Mid-Market Tech Co.
“Versatile consistently delivered work that was both strategically sharp and execution-ready. Their turnaround times are impressive, and they think about problems the way an in-house team would.”
Shivani K. Senior Manager, Tech TA
Via G2
Growth-stage Startup
“Their team was highly responsive, professional, and easy to work with. They made a complex process feel simple.”
Mukul S. Core Team, Growth-stage Startup

Case studies.

Largest food delivery app in India, decacorn View case study The world's largest professional network, part of Microsoft View case study Legacy US software company, publishing platforms View case study

All of this computation lives inside the same flat fee.

No per-payslip charges, no computation add-ons. The $149 employment fee includes the full calculation stack. $129 past twenty. Recruitment optional at 12% of CTC.

Employer of Record

Computation included
$149 /employee/mo

PF, ESIC, TDS, PT and gratuity computation with second review, all inside the flat monthly number. $129 per seat once you clear twenty heads.

Start hiring
  • Employment on our Bengaluru registration
  • Full statutory computation each cycle
  • Second-reviewer check before remittance
  • Receipts and workings archived monthly
  • Live payroll in five working days
  • A compliance owner who signs the cycle
  • Payslip portal per employee
  • Entity transfer whenever you build one
  • Employment on our Bengaluru registration
  • Full statutory computation each cycle
  • Second-reviewer check before remittance
  • Receipts and workings archived monthly
Four more inclusions
  • Live payroll in five working days
  • A compliance owner who signs the cycle
  • Payslip portal per employee
  • Entity transfer whenever you build one

Complex compensation structures? Sales will talk through the treatment.

Recruitment

If we also source
12% of annual CTC

12% of annual CTC for junior and mid-level hires, billed on day ninety. Senior searches at 15%. Bring-your-own candidates are always free.

Send us a role
  • Shortlist within nine working days
  • Benchmarked salary guidance
  • Interviews on your schedule
  • Fee waits until day ninety
  • Senior positions at 15%
  • Leadership scoped individually
  • Referrals onboarded at no fee
  • Placement onto either entity
  • Shortlist within nine working days
  • Benchmarked salary guidance
  • Interviews on your schedule
  • Fee waits until day ninety
Four more details
  • Senior positions at 15%
  • Leadership scoped individually
  • Referrals onboarded at no fee
  • Placement onto either entity

Batch of roles? One mandate, one scope, from Sales.

Same threshold, same discount

$149 $129 /employee/mo

Twenty-one active employees switches the entire roster to $129 that cycle, hands-free.

Computation coverage in the fee

  • Basic and allowance split maintained
  • 12% PF both sides, correctly based
  • ESIC band checked every month
  • Regime-elected TDS deposited by the 7th
  • State PT slab applied per employee
  • Gratuity accrued at 4.81% of basic
  • Payslips with visible workings
  • Year-end Form 16 issued

The roster reprices at twenty-one

$149 $129 /employee/mo

Every seat, old and new, moves to $129 together with nothing to sign.

What the fee computes

  • Basic and allowance split maintained
  • 12% PF both sides, correctly based
  • ESIC band checked every month
  • Regime-elected TDS deposited by the 7th
  • State PT slab applied per employee
  • Gratuity accrued at 4.81% of basic
  • Payslips with visible workings
  • Year-end Form 16 issued

Recruitment invoices at 12% of annual CTC on day ninety when used. Salaries and employer contributions pass through at exact remitted cost. The whole computation stack can be previewed against your own salary bands in the EOR versus entity calculator at any time.

The computation questions, worked through.

Eight arithmetic questions we answer most, from PF bases to regime elections. The last one names when this page is not what you need.

How is PF calculated on an Indian salary?

Both employee and employer contribute 12% of basic wages plus dearness allowance. What qualifies as the wage base has been litigated, so allowance structuring matters. A portion of the employer share routes to the pension scheme. We apply settled interpretations and keep the workings on file.

Who is covered by ESIC and at what rates?

Employees whose gross monthly pay falls within the statutory ceiling are covered: the employer contributes 3.25% of gross and the employee 0.75%. When a raise carries someone past the ceiling, contributions continue until the contribution period closes, a transition rule our review step tracks.

How does TDS on salary work with two tax regimes?

Each employee elects the old regime, with exemptions and deductions, or the new regime, with lower slab rates and fewer breaks. The employer computes monthly withholding on projected annual income under the elected regime and deposits it by the 7th of the following month. We collect elections and proofs and run both computations correctly.

What is the 4.81% gratuity figure everyone quotes?

Gratuity vests after five years of continuous service at fifteen days of last-drawn basic per year served. Spread across a year that approximates 4.81% of basic, which is the sensible monthly provision. We accrue it from each employee's first day so the liability never arrives as a surprise.

Why does professional tax differ by state?

PT is a state levy capped at ₹2,500 a year nationally. Karnataka deducts monthly above a salary threshold, Maharashtra runs gender-differentiated slabs with a February top-up, Tamil Nadu collects half-yearly, and Delhi levies nothing. Our per-employee state matrix applies whichever rule fits.

What goes into gross-to-net for one employee?

Start from gross, subtract employee PF at 12% of basic, employee ESIC at 0.75% if in band, TDS per the elected regime, and the state PT amount. Employer costs, the 12% PF match, 3.25% ESIC and the gratuity accrual, sit above gross and appear on your invoice as pass-through.

Can we see and audit your calculations?

Always. Each cycle produces computation sheets per employee alongside challans and acknowledgements, packed monthly to your inbox. Your auditor can trace any payslip line to its rate, base and receipt without asking us twice.

When is this level of computation help unnecessary?

If you employ through your own Indian entity with an experienced payroll team, you need software, not us. If your India presence is contractors on short projects, invoicing replaces computation entirely. This page matters when you employ people in India without wanting to build the desk that computes for them.

Longer reading: India payroll hub · Flexible benefits guide · Pay employees in India

Tell us where you are on the decision.

A role you want to hire, a team you want moved, or just the two routes to compare. A named person replies in 4 to 6 hours.

A named person replies in 4 to 6 hours, not an autoresponder.

We use these details to respond to your enquiry.

A named person replies in 4 to 6 hours, not an autoresponder. We use these details to respond to your enquiry.

What the first call covers

30 minutes

A cost comparison for your headcount, on your numbers, both routes.

  • A written cost breakdown
  • Entity documents before the call
  • PF, ESI, TDS, termination law
  • No follow-up sequence
Book a call →

You pick the time, we send a Meet link. Any timezone.

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