Salary structure and payroll components in India, explained

What is a salary structure?

A salary structure is the list of components that make up an employee's monthly pay, each with a rule for how it is calculated. Earnings add up to gross pay; deductions are taken from gross to give net pay, the amount paid into the employee's bank account. Employer contributions sit on top and count towards the cost to the company.

Setting the structure once, and changing it only with an effective date, is what makes monthly payroll quick and the same every month.

Which earnings make up a typical salary in India?

Most Indian salaries are built from Basic pay plus a set of allowances, with Basic acting as the base that other components are calculated from.

How much of pay sits in Basic matters, because provident fund and other statutory amounts are calculated from wages, and the definition of wages under labour law has been changing. Agree the split with your CA.

Which deductions appear on an Indian payslip?

The three deductions most small businesses handle are provident fund, professional tax and income tax deducted at source. Each one is a liability: the employer deducts it and must pay it to the right authority.

Provident fund (PF)

Provident fund is a retirement saving run by the EPFO. The commonly cited employee contribution is 12% of Basic (with dearness allowance, where paid), and the employer contributes a matching amount, part of which goes to the pension scheme. Contributions are subject to wage ceilings and the current rules on who must be covered.

Professional tax (PT)

Professional tax is a tax on employment levied by some states. The amount, the salary slabs and whether it is deducted monthly or half-yearly vary by state, and the Constitution caps it at ₹2,500 a year per person. Some states do not levy it at all.

TDS on salary

TDS on salary is income tax the employer deducts each month from the employee's estimated tax for the year, worked out on the income tax slabs of the regime the employee chooses. The employer deposits it with the government and gives the employee an annual certificate of tax deducted.

Other components

• ESI (Employees' State Insurance) applies to employees up to a wage limit in covered areas, with both employee and employer contributions.
• Advance recovery takes back a salary advance in instalments.
• Loss of pay reduces earnings for unpaid days, and is usually applied by prorating each component.

How is a monthly payslip calculated?

A payslip adds the month's earnings, subtracts the deductions and shows the net. Here is September 2026 for Karthik R, store keeper at Lakshmi Steel Furnitures, the fictional Coimbatore business on this site, with 30 paid days.

The professional tax line is shown as ₹180 a month for illustration only. Check your state's slabs and schedule. TDS is zero here because the estimated annual tax on this salary is nil under the regime chosen; it is not zero for everyone.

How does loss of pay change the payslip?

Loss of pay scales each prorated component by paid days over working days, and the percentage deductions follow the reduced Basic. If Karthik had taken 2 unpaid days in a 30-day month:

What does the salary journal look like?

Payroll is an accounting event: approving the month's pay records the salary expense and what is owed to employees and to the authorities. For Karthik's full-month payslip:

When salaries are paid, salaries payable is cleared against the bank. PF, PT and TDS stay as liabilities until you pay them to the authorities.

What should you check before running payroll each month?

• Attendance and leave for the month are complete and approved
• New joiners have a structure with an effective date; leavers have a last working day
• Salary changes are entered as a new structure from the right date, not by editing the old one
• Advances to recover this month are listed
• TDS amounts reflect each employee's latest declared income and chosen regime
• Professional tax follows your state's current slabs
• Gross, deductions and net are reviewed before approval

How does SimpleERP run payroll?

SimpleERP builds each month's payslips from salary structures and attendance, and posts the salary journal when you approve the run.

• Seeded components: Basic, HRA at 40% of Basic, conveyance, special allowance, bonus, PF at 12% of Basic, PT, TDS and the employer's PF at 12% of Basic. Edit them, or add your own such as ESI as a percentage of gross.
• Structures are versioned by effective date, so a raise never rewrites past months.
• Paid days and loss of pay come from attendance and leave in the HR module.
• Approving the run posts the accrual journal; marking it paid posts the bank payment.
• Employees see their payslips on their phones through self-service.
• TDS and PT are amounts you set per employee; SimpleERP does not compute income tax or file statutory returns.

See the full module on the payroll software page.