Payroll Processing India: The Process, Start to Finish
The mechanics of Payroll Processing India are what clients ask about once they have decided to proceed. The questions below are the ones raised most often in practice; the full scope of the service is on the Payroll Processing India page.
What is the difference between old regime and new regime for TDS on salary — and which one should my employee choose?
Under Section 392 of the Income-tax Act 2025 (Section 192 of the 1961 Act for salary paid up to 31 March 2026), the employer deducts TDS on projected annual salary using whichever tax regime the employee declares to the employer for that year. Employees with significant 80C investments, HRA claims, and home loan interest outgo generally still pay lower tax under the old regime; employees with few investments or no HRA/home-loan claims usually benefit from the new regime. The choice is declared to the employer (via Form 12BB / a regime declaration) at the start of the financial year and governs TDS for the entire year — it cannot be switched with the employer mid-year. An employee (with no business income) may choose a different regime at the time of filing their personal ITR, independent of what was used for employer TDS, but that is the employee's own filing choice, not a mid-year payroll correction.
In practice: We compute both regime liabilities for each employee when they join and at the start of each financial year. This is not advice HR can give without a tax computation — it requires a CA.
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.
In practice: This question arises surprisingly often when businesses are newly GST-registered and attempt to run all payments through the same compliance framework. Salaries are purely an income tax and labour law matter.
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, for salary up to FY 2025-26. For salary from tax year 2026-27 the certificate is Form 130 under the Income-tax Act 2025, also due by 15 June of the following 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.
In practice: Many employers issue Form 16 in the last week of June or early July — after the ITR season has already started. Employees without Form 16 cannot file accurately. Issuing Form 16 well before the 15 June deadline gives employees more time to file accurately.
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. Slabs and payment frequencies differ by state — Karnataka requires employer registration (PTRC) and monthly 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.
In practice: A Bangalore-headquartered company with employees in Chennai, Hyderabad, and Delhi has three different PT compliance obligations — or none in the case of Delhi. We manage PT across all states in which our payroll clients operate.
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 ahead of the payroll cut-off.
In practice: The main recurring input is the monthly payroll data; the rest of the compliance function — deposits, returns, records, notices — is handled as part of the service.
Where this sits in the wider engagement
Payroll Processing India rarely arrives on its own. The statutory basis and the current requirements are set out on the Payroll Processing India service page, and the related services are grouped under Accounting Payroll.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Payroll Processing India we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.