What is payroll deductions?

January 5, 2023

Payroll deductions refer to the cost the employer deducts from the employee’s Salary every month in the form of taxes or voluntary deductions. The employer withholds a certain percentage of the employees’ Salary every month to cover contributions towards insurance premiums, investment plans, and retirement plans. While the government-mandated taxes, employee provident fund, employee state insurance, and TDS are compulsory deductions and implemented throughout the employee’s tenure. These deductions are removed from the employee’s total earnings, including bonuses and commissions. 

Let’s take a deep dive into a few payroll deductions:

  • Provident Fund (PF)
  • ESI (Employee state insurance fund)
  • Professional Tax
  • Income tax/TDS
  • National Pension Scheme (NPS)

Provident Fund (PF):

Provident Fund (PF) is a benefit scheme for employees whereby the employer and the employees contribute to the EPF account monthly. Here, the employer is responsible for depositing the amount in the EPF account, and the employee’s EPF share is deducted from their monthly payroll.

ESI (Employee state insurance fund):

ESI is a contributory fund that enables employees to participate in a self-financed healthcare insurance fund with contributions from both the employee and their employer. Employees’ State Insurance Corporation manages the scheme, and a government entity is a self-financing, social security, and labor welfare organization. ESI is one of the most famous integrated need-based social insurance schemes among employees. 

Professional Tax:

Professional tax is a direct tax levied on the employee’s income. It applies to an individual who earns income from employment; the employer deducts professional tax from their monthly/quarterly/half-yearly salaries. Penalties are imposed by the government when the employees fail to pay the professional tax.

Income tax/TDS:

Income tax is also known as Tax Deducted at Source. This amount is the primary tax that is paid to the central government. The percentage slabs for each individual are based on their monthly earnings, which include all sources such as salaries, commissions, bonuses, dividends, interests, and capital gains.

When the complexities of payroll tax systems are imposed, outsourcing payroll leads to various benefits for employers who may outsource the process to gain the advantage through third party expertise like Talentpro.


  Income tax slab rate FY (AY 2022-23) – Applicable for New Tax regime:

Income tax slab  New Regime Income Tax Slab Rates  (Applicable for All Individuals & HUF)
Rs0.0 – R2.5 lakh  NIL  
Rs2.5lakh – Rs3.00 lakh  5% (tax rebate)  
Rs5.00lakh – Rs5.00 lakh    5% (tax rebate)  
 Rs5.00lakh- Rs7.5 lakh    10%  
  Rs7. lakh – Rs10.00 lakh    15%  
  Rs10.00 lakhs – Rs12.50 lakh  20%  
 Rs12.5 lakhs – Rs15.00 lakh  25%  
> Rs15 lakh  30%  

Income Tax slabs & Rates as Per Old Regime:

Income tax slab   Income Tax Slab Rates FY 2021-22  (Applicable for All Individuals & HUF)  
Up to Rs.2.5 lakh    Nil  
Above Rs.2.50 lakh – Rs.5.00 lakh   5% of the total income that is more than Rs.2.5 lakh + 4% cess  
Above Rs.5lakh – Rs.10 lakh  20% of the total income that is more than Rs.5 lakh + Rs.12,500 + 4% cess
Above Rs.10 lakh30% of the total income that is more than Rs.10 lakh + Rs.1,12,500 + 4% cess

National Pension Scheme (NPS):

National Pension Scheme is a voluntary deduction by employees as a means of retirement savings, enabling them to benefit from systematic savings during their work cycle. The savings deducted from the employees’ bank accounts are pooled and invested by PFRDA (Pension Fund Regulatory and Development Authority) regulated fund managers as per the investment guidelines.

How can we ensure accuracy in Payroll Deductions?

The job of payroll calculation is subjected to mistakes and inaccuracies. Payroll calculation mistakes can lead to penalties and statutory litigations. When it is outsourced to the Payroll outsourcing company like TalentPro this can be assured out of imposed penalties.

TalentPro’s payroll Management service offers the most secure payroll management and calculation assistance. The Payroll Management offered by TalentPro caters to the following features in an easy and hassle-free manner.

  1. Salary Calculation
  2. Reimbursement Management
  3. Over Time Management
  4. Bonus Calculation
  5. Full & Final Settlement
  6. Tax Declarations or investment proofs
  7. Gratuity Calculation
  8. Pay slips & Reimbursement Slips
  9. Salary Register & Various reports
  10. Increment Module

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