ERPNext Payroll for India: Configuring PF, ESI, and TDS Without the Guesswork

Description and use

In ERPNext, you must manually configure salary components for PF, ESI, and TDS to automatically calculate statutory deductions and avoid payroll errors.

Problem

Clients need to configure Indian statutory deductions (PF, ESI, TDS) correctly in ERPNext to avoid incorrect salary slips.

Outcome

After following the step‑by‑step configuration, payroll runs correctly with statutory deductions applied automatically, reducing reconciliation effort.

Workflow

• Create salary components (Basic, HRA, EPF Employee, ESI Employee, TDS, EPF Employer) with correct types, abbreviations, formulas, and flags.
• Set up Income Tax Slab documents for Old and New regimes, including cess and exemption settings.
• Build a Salary Structure (Standard India CTC) with earnings, deductions, and employer contributions, then submit it.
• Assign the Salary Structure to employees via Salary Structure Assignment, specifying Base and Income Tax Slab.
• Run payroll via Payroll Entry, review and submit salary slips, ensuring prorating and dynamic TDS are applied.

Evidence

ERPNext doesn’t ship with India‑specific salary components pre‑built. You set them up once, correctly, and they run every month without drama.

Source

EPF Employee: Formula: B * 0.12 if B <= 15000 else 1800

Source

TDS / Income Tax: Variable Based On Taxable Salary: checked — this is the critical flag.

Source

The monthly TDS is not a fixed 1/12 of annual tax. ERPNext recalculates at each payroll run based on income earned so far, approved exemptions, and the number of months remaining in the financial year.

Source