How to Generate Payslips for Indian Employees (PF & ESI)

Indian payroll is uniquely layered. Between CTC, gross pay, and net pay — three different numbers for the same job — plus EPF, ESI, Professional Tax, and TDS, a single payslip carries a lot of moving parts.

The Payment of Wages Act, 1936 and Payment of Bonus Act set the baseline. But modern compliance means handling contributions across multiple government portals. Here's how to build an Indian payslip that's accurate and compliant.

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Understanding CTC vs Gross vs Net

This distinction confuses employees and employers alike. Here's the breakdown:

Term	What It Includes	Who Sees It
CTC (Cost to Company)	Gross salary + employer PF + employer ESI + gratuity provision + perks	Offer letter
Gross Salary	Basic + HRA + all allowances + bonuses	Payslip (top line)
Net Salary	Gross − employee PF − employee ESI − Professional Tax − TDS	Bank account

An employee offered a CTC of INR 8,00,000 might see a gross of INR 6,60,000 and take home around INR 5,50,000. The gap is real — and the payslip must explain every rupee.

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Step 1: Structure the Salary Components

Indian salaries are split into components, each with tax and compliance implications.

Component	Typical % of Basic	Purpose
Basic Salary	40–50% of CTC	Foundation for PF, gratuity, HRA
HRA (House Rent Allowance)	40–50% of Basic	Tax-exempt under Section 10(13A)
Conveyance Allowance	Fixed (varies)	Travel-related
Medical Allowance	Fixed (varies)	Health expenses
Special Allowance	Remainder	Fully taxable, balancing figure

A higher basic means higher PF contributions (more retirement savings, less take-home). Many companies set basic at 40% of CTC to balance compliance and cash in hand.

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Step 2: Calculate EPF Contributions

The Employees' Provident Fund applies to establishments with 20+ employees and to all employees earning basic + DA up to INR 15,000/month (though many companies extend it to all staff).

Contribution	Rate	Calculated On
Employee EPF	12%	Basic + DA
Employer EPF (to EPF)	3.67%	Basic + DA
Employer EPS (Pension)	8.33%	Basic + DA (capped at INR 15,000)
Total Employer	12%	Basic + DA

Example (Basic + DA = INR 25,000/month)

Item	Amount
Employee PF (12%)	INR 3,000
Employer PF (3.67%)	INR 917
Employer EPS (8.33% on INR 15,000 cap)	INR 1,250
Total employer contribution	INR 2,167 + INR 1,250 = INR 3,000

Both employee and employer contribute 12%, but the employer's share is split between EPF and EPS.

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Step 3: Calculate ESI Contributions

The Employees' State Insurance applies to employees earning gross wages up to INR 21,000/month.

Contribution	Rate
Employee ESI	0.75% of gross wages
Employer ESI	3.25% of gross wages
Total	4% of gross wages

For an employee earning INR 20,000 gross:

Item	Amount
Employee ESI (0.75%)	INR 150
Employer ESI (3.25%)	INR 650

Once an employee's gross crosses INR 21,000/month, ESI no longer applies — but coverage continues for the contribution period.

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Step 4: Deduct Professional Tax

Professional Tax is a state-level tax with varying slabs. It's capped at INR 2,500 per year across all states.

State	Monthly Deduction (approx.)
Maharashtra	INR 200 (up to INR 10,000 gross), INR 300 (above)
Karnataka	INR 200
West Bengal	INR 150–200 (slab-based)
Tamil Nadu	Up to INR 208/month
Andhra Pradesh/Telangana	INR 200 (slab-based)

Not all states levy Professional Tax. Check the applicable state for each employee's work location.

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Step 5: Calculate TDS (Tax Deducted at Source)

TDS is the income tax withheld monthly based on estimated annual income. The employer calculates it under Section 192.

Under the new tax regime (default from FY 2023-24 onwards):

Annual Income Slab	Tax Rate
Up to INR 3,00,000	Nil
INR 3,00,001 – 7,00,000	5%
INR 7,00,001 – 10,00,000	10%
INR 10,00,001 – 12,00,000	15%
INR 12,00,001 – 15,00,000	20%
Above INR 15,00,000	30%

Employees can opt for the old regime to claim HRA, 80C, and other deductions. The payslip should reflect whichever regime the employee has declared.

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Step 6: Generate the Payslip with CleverSlip

CleverSlip's India payslip template is built for this complexity:

1. Select the India template — pre-loaded with EPF, ESI, PT, and TDS fields
2. Enter employee details — name, employee ID, PAN, UAN, and ESI number
3. Input salary components — basic, HRA, conveyance, special allowance, and any bonuses
4. Configure deductions — EPF at 12%, ESI at 0.75% (if applicable), Professional Tax by state, and monthly TDS
5. Review earnings vs deductions — the template calculates net pay automatically
6. Download as PDF — ready for distribution and record-keeping

The template clearly separates employer contributions (shown for transparency but not deducted from pay) from employee deductions, so employees understand exactly where their CTC goes.

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Key Takeaways

• CTC is not take-home — the payslip must bridge that gap clearly
• EPF applies at 12% each from employee and employer on basic + DA
• ESI applies only when gross is at or below INR 21,000/month
• Professional Tax varies by state, capped at INR 2,500/year
• TDS depends on the chosen tax regime and declared investments

A well-structured Indian payslip prevents employee confusion and keeps your business compliant across central and state regulations. CleverSlip handles the component math so you can focus on running your team.