HRMS & Payroll Software for Indian Companies: Complete 2026 Guide
Indian payroll is complex. PF, ESIC, PT, TDS, gratuity — every state has different rules. Here's how to stop making errors and start running payroll in 20 minutes.
Indian payroll is among the most complex in the world. You're managing PF (12% employer + 12% employee), ESIC (3.25% employer + 0.75% employee), professional tax (state-specific, up to ₹2,500/year), TDS (based on declared investments), and gratuity (15 days per year of service after 5 years) — all with different cut-offs, thresholds, and filing deadlines.
Most Indian SMBs handle this with a combination of Excel, a CA who visits once a month, and institutional knowledge in one person's head. When that person leaves, the business is exposed. This guide explains what good HRMS software does, what Indian compliance requirements you need to cover, and how to pick software that handles it all without a dedicated HR team.
What Indian payroll compliance actually requires
Indian statutory compliance for payroll involves multiple overlapping systems:
- Provident Fund (PF): 12% of basic salary from both employer and employee. Threshold: employees earning up to ₹15,000 basic must be enrolled. Above ₹15,000 is optional
- ESIC: 3.25% employer + 0.75% employee contribution. Applies to employees earning up to ₹21,000/month gross. Medical coverage provided
- Professional Tax: State-imposed tax ranging from ₹0–₹2,500/year. Maharashtra, Karnataka, West Bengal, Tamil Nadu all have different slabs
- TDS (Section 192): Income tax deducted at source based on employee's projected annual income and declared investments (HRA, 80C, etc.)
- Labour Welfare Fund: State-specific bi-annual contribution (₹6–₹36 per employee depending on state)
- Gratuity: 15 days of last drawn salary for every completed year of service — mandatory after 5 years of employment
📊 41% of Indian SMB payroll runs contain at least one PF/ESIC/TDS calculation error. In 58% of cases, a compliance notice has been received in the past 3 years.
HRMS vs. payroll software: what's the difference?
Many businesses confuse HRMS (Human Resource Management System) with payroll software. They're related but different:
**Payroll software** calculates and processes employee salaries, statutory deductions, and generates payslips and compliance reports. It answers: how much do I pay each employee this month?
**HRMS** is broader: it covers the entire employee lifecycle — recruitment, onboarding, attendance, leave management, performance, and payroll. It answers: how do I manage my people, not just pay them?
For Indian businesses, the practical question is whether you need the full HRMS or just payroll. Our recommendation:
- Under 10 employees: Payroll software alone is usually sufficient
- 10–50 employees: HRMS with integrated payroll — attendance and leave feed directly into payroll
- 50+ employees: Full HRMS with payroll, performance, recruitment, and compliance management
State-specific payroll compliance in India
Professional tax, Labour Welfare Fund, and some ESIC rules vary by state. Here's what businesses in major states need to know:
- Maharashtra: PT up to ₹2,500/year (₹200/month for salary ≥ ₹10,000). Maharashtra LWF: ₹6 employer + ₹6 employee twice yearly
- Karnataka: PT up to ₹2,400/year on slab basis. KLWF: ₹20 employer + ₹10 employee annually
- Tamil Nadu: PT up to ₹1,800/year. Tamil Nadu LWF: ₹20 employer + ₹10 employee semi-annually
- West Bengal: PT up to ₹2,500/year. WBLWF: ₹3 per employee per year
- Delhi: No professional tax. LWF contribution applies
- Gujarat: PT up to ₹2,500/year. Gujarat LWF: ₹6 per employee per year
💡 If you have employees in multiple states, your payroll software must know the correct PT slab and LWF rate per employee location — not just per company location.
Key HRMS features Indian businesses need
When evaluating HRMS software for your Indian company, these features are non-negotiable:
- Attendance integration: Software should connect to biometric machines or mobile check-in — manual attendance entry defeats the purpose
- Leave management: Casual, earned, sick, maternity/paternity — all with correct statutory minimum days and carry-forward rules
- Flexible salary structures: Indian businesses have complex salary structures — basic, HRA, TA, medical, special allowance, LTA. Software must support all components
- Automated TDS calculation: Employees declare investments at year start. Software should recalculate TDS monthly based on actual vs. projected
- Payslip delivery: Payslips should be auto-emailed or accessible via mobile app — not manually distributed
- Form 16 generation: Year-end TDS certificate must be generated for every employee — software should do this in one click
- Bank transfer file: NEFT/RTGS file in your bank's format to process salary in bulk without manual transfers
HRMS for specific industries in India
Different industries have different HR complexity:
- Manufacturing: Factory workers (PF/ESIC mandatory), contract labour (different compliance), shift management, overtime calculation
- IT companies: Flexible hours, remote work, variable pay, ESOPs, multi-location teams across states
- Healthcare: Duty rosters, night shift allowances, doctors on retainer vs. staff on fixed salary
- Retail: Part-time staff, daily wage workers, commission-based pay, high attrition management
- CA firms: Article clerks (stipend vs. salary), different PF applicability, utilisation tracking
Frequently Asked Questions
What is the best HRMS software for Indian companies?
For Indian companies with 10–200 employees, Proactiq HRMS is purpose-built for Indian compliance — PF, ESIC, state-wise PT, TDS, and Form 16 generation, with attendance integration and payslip automation. Keka, GreytHR, and Darwinbox are also strong options for mid-market. For under 10 employees, Proactiq's free HRMS plan covers the basics.
Is PF mandatory for all employees in India?
PF is mandatory for all employees earning up to ₹15,000 in basic salary per month in organisations with 20+ employees. For employees earning above ₹15,000, PF is optional but the employer must offer it. For organisations with fewer than 20 employees, PF registration is voluntary unless the company opts in.
How do I calculate professional tax for employees in different states?
Professional tax varies by state. Maharashtra charges up to ₹200/month for salaries above ₹10,000. Karnataka charges up to ₹200/month above ₹15,000. Delhi has no professional tax. Good payroll software like Proactiq applies the correct state slab automatically based on each employee's work location.
What is the difference between gross salary and CTC in India?
CTC (Cost to Company) includes everything the employer pays — gross salary plus employer's PF contribution, ESIC contribution, gratuity provision, and any other perks. Gross salary is what appears on the payslip before deductions. Take-home is gross minus employee PF, ESIC, PT, and TDS. Our salary calculator shows this breakdown instantly.
How often do I need to file PF and ESIC returns?
PF: Monthly ECR (Electronic Challan cum Return) by the 25th of the following month. Annual return by April 30. ESIC: Monthly contribution by the 21st. Half-yearly return in May and November. Good payroll software generates these reports automatically.
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