Running Monthly Payroll: PF, PT, and TDS Explained

Payroll errors are the most expensive HR mistakes

Pay someone wrong once and they'll question every payslip for the rest of their tenure. Pay them correctly, every month, without them having to ask — and it becomes invisible. Invisible payroll is the goal. The moment payroll requires a conversation, something has failed.

Understanding the Indian payroll structure

Indian payroll has a specific legal structure. Every payslip should break down as follows:

• Basic Salary — 40–50% of CTC. This is the base on which all statutory calculations are made.
• HRA (House Rent Allowance) — 40% of basic for non-metro cities, 50% for metro cities. Partially tax-exempt if the employee is paying rent.
• Special Allowance — The balancing component that makes up the remaining CTC.
• LTA (Leave Travel Allowance) — Tax-exempt twice in a 4-year block when actually used for travel.
• Gross Salary — Sum of all above components

From the gross, three statutory deductions are made:

• Provident Fund (PF) — 12% of basic salary. Both employee and employer contribute 12%. Employee's share is deducted from salary; employer's share is an additional cost above CTC.
• Professional Tax (PT) — State-specific slab tax. Karnataka: ₹200/month for salaries above ₹15,000. Maharashtra, West Bengal, and other states have different slabs.
• Income Tax (TDS) — Monthly advance deduction based on estimated annual tax liability. Calculated on the employee's income tax slab after all exemptions.

Running a payroll in Proactiq

Go to HR & People → Payroll → New payroll run:

1. Set the period (e.g., "May 2025"), period start, and period end dates
2. Add each employee. Their CTC pre-fills from their employee profile.
3. Review the auto-calculated gross, PF deduction, PT deduction, and TDS
4. Adjust for LOP days (Loss of Pay) if any employee was absent beyond their leave balance
5. Review the total payroll outflow for the month
6. Change status to Processing when you initiate bank transfers
7. Change to Paid once all salary credits are confirmed. Payslips become available to employees in their profile.