Indian payroll is harder than it looks. Behind every salary slip sit PF, ESI, professional tax, TDS, gratuity and a calendar of statutory filings that change by state and by financial year. With ERPNext, payroll runs in Frappe HR, the HR app that sits on the same system as your accounts, so a payroll run posts straight to the ledger instead of living in a separate spreadsheet.
Quick answer
Frappe HR, the open-source HR app that runs alongside ERPNext, handles salary structures, income-tax (TDS) computation on salary, salary slips, gratuity and payroll posting into ERPNext accounting. For Indian statutory rules on v16, Frappe's own India Payroll app adds PF, ESI, professional tax, Labour Welfare Fund, tax regime comparison, employee declarations and the related registers. It fits companies that want HR, payroll and finance in one system they own, rather than a separate payroll subscription. MithTech, a team of Frappe specialists in Bengaluru, sets up and runs Frappe HR for Indian organisations.
Many growing Indian companies start payroll in Excel, move to a standalone payroll service, and then find the data never quite reconciles with their books. On ERPNext, HR, payroll and accounting share one database: a payroll run is also a journal entry, and your statutory liabilities show up in the same general ledger as everything else. To have it set up for you, see ERPNext HRMS and payroll implementation.
PF, ESI, PT, TDS, gratuity at a glance
| The rule in short | ||
|---|---|---|
| PF (EPF / EPS) | 12% employee + 12% employer on PF wages; EPS on wages up to ₹15,000 a month | India Payroll app (v16) or salary components |
| ESI | Employees with wages up to ₹21,000 a month; 0.75% employee + 3.25% employer | India Payroll app (v16) or salary components |
| Professional tax | State slabs; some states levy none | India Payroll app (v16) or a state-wise deduction component |
| TDS on salary | Projected annual income, declarations and the chosen regime | Frappe HR income tax slabs and declarations |
| Gratuity | Payment on separation, by service and last-drawn wages | Frappe HR gratuity rules |
Figures as EPFO and ESIC state them at the time of writing (October 2026). Check the current notification before you configure them.
What "ERPNext HR" actually is
The HR and payroll capability for ERPNext is delivered by Frappe HR (the HRMS app, previously part of ERPNext itself). It is a full HRMS covering the employee lifecycle, attendance and leave, expense claims, performance, recruitment and payroll. Because it is built on the same Frappe framework as ERPNext accounting, every payroll run can create its accounting entries automatically.
That integration is the point. A standalone payroll tool gives you salary slips; you then re-key the totals into your accounts. With Frappe HR, the salary structure assignment, the payroll entry, the salary slips and the ledger postings are one connected chain.
For Indian statutory rules, Frappe released India Payroll, an extension app for Frappe HR, in its first version for v16. It covers PF, ESI, professional tax, Labour Welfare Fund, tax regime comparison, employee declarations and the related reports and registers. On older versions, the same rules are modelled as salary components with formulas.
If you are weighing ERPNext as your core system more broadly, estimate your price. The Frappe HR page covers the HR app specifically.
How does ERPNext handle each part of Indian statutory payroll?
Indian payroll compliance has five moving parts. Here is how each maps into Frappe HR.
Provident Fund (EPF / EPS)
The Employees' Provident Fund applies to most establishments with 20 or more employees. The standard contribution is 12% of PF wages from the employee and 12% from the employer. The employer's share is split: a portion goes to the Employees' Pension Scheme (EPS), calculated on a wage ceiling of ₹15,000 per month, and the rest to EPF. These are EPFO's rates at the time of writing; check the current notification.
In Frappe HR you model PF as salary components, an employee-side deduction and an employer-side contribution, with formulas on the PF wage base. On v16 the India Payroll app provides this setup. The ceiling and split are configured once and applied to every salary slip.
Employees' State Insurance (ESI)
ESI applies to employees with wages up to ₹21,000 per month in covered establishments. The contribution is 0.75% from the employee and 3.25% from the employer. These are ESIC's figures at the time of writing; check the current notification. Frappe HR handles the eligibility threshold and the two contributions as salary components, so an employee who crosses the ceiling is treated by the rules you configure.
Professional Tax (PT)
Professional tax is a state-level levy, so the slab and amount differ by state. In Karnataka it is a fixed monthly deduction above a wage threshold; states such as Maharashtra and West Bengal have their own slabs, and some states do not levy it at all. Frappe HR supports state-specific PT as a deduction component, which matters if you employ people in more than one state.
Income tax / TDS on salary
Employers deduct income tax at source from salaries based on each employee's projected annual income, declared investments and chosen tax regime (old or new). From 1 April 2026 this sits under section 392 of the Income-tax Act, 2025; salary paid up to 31 March 2026 falls under section 192 of the 1961 Act. Frappe HR computes the annual tax liability, spreads it across the remaining pay periods and shows the monthly TDS on the salary slip. Employee tax-saving declarations and proofs are captured in the system, so the deduction adjusts through the year.
Gratuity
Gratuity is payable on separation, based on length of service and last-drawn wages: generally after five years of continuous service, and after one year for fixed-term employees under the Code on Social Security. Frappe HR records the gratuity rule and computes the amount at separation. Confirm the eligibility rules that apply to your staff with your CA.
Statutory rates, wage ceilings and slabs are revised by the relevant authorities and vary by state and financial year. Treat the figures above as the framework at the time of writing, and confirm current rates for your states before each payroll cycle.
How a payroll run works in ERPNext
The payroll flow is built from a few connected documents:
| What it does | ||
|---|---|---|
| 1. Define pay | Salary Structure | Component-based earnings and deductions with formulas (basic, HRA, PF, ESI, PT, TDS). |
| 2. Assign pay | Salary Structure Assignment | Links a structure to an employee from an effective date, with their CTC base. |
| 3. Feed inputs | Attendance / Leave | Days present, loss-of-pay days and leave feed into the salary calculation. |
| 4. Run payroll | Payroll Entry | Generates salary slips for a department, branch or company for the period in one action. |
| 5. Pay and post | Salary Slip + Journal / Bank Entry | Produces each slip, then books salary, statutory liabilities and net pay to the ledger. |
Because the Payroll Entry creates the accounting entries, your PF, ESI, PT and TDS payables all appear as liabilities in the same general ledger as the rest of your finances, ready to be cleared when you make the statutory payments.
Attendance, leave and the inputs to payroll
Payroll is only as accurate as its attendance data. Frappe HR supports:
- Attendance via biometric or device import, mobile check-in with geolocation, or manual marking.
- Leave management with leave types, allocation, the application-and-approval workflow, and loss-of-pay handling that flows into the salary slip.
- Shifts and rosters for businesses running more than one shift.
- Expense claims and advances that can be settled through payroll.
For a Bengaluru manufacturer or services firm running shifts, attendance captured on the floor feeds the same payroll that posts to the books, with no re-keying. Our attendance and leave guide covers the setup.
Statutory reports and the monthly compliance calendar
Frappe HR produces the data behind the recurring Indian filings: the PF electronic challan-cum-return (ECR), ESI contributions, professional tax, and the quarterly salary TDS return and annual salary certificate. A typical monthly rhythm:
| Obligation | |
|---|---|
| By the 15th | PF contribution deposit and ECR filing for the previous month |
| By the 15th | ESI contribution deposit for the previous month |
| Monthly or as the state sets | Professional tax payment and return (state-specific due dates) |
| By the 7th | TDS deposited to the government for the previous month |
| Quarterly | Salary TDS return (Form 24Q under the 1961 Act) |
| Annual | Salary TDS certificate to employees (Form 16 under the 1961 Act); annual PT and other returns |
The Income-tax Act, 2025 renumbers the TDS forms from 1 April 2026, so confirm the current form numbers and due dates with your CA. ERPNext does not file these returns for you. What it gives you is that the numbers behind every filing come from one reconciled source, so preparing a return is a data export rather than a reconstruction.
How does ERPNext payroll compare to standalone payroll software?
| ERPNext (Frappe HR) | ||
|---|---|---|
| Cost model | Implementation + hosting; no per-employee fee | Usually a per-employee monthly subscription |
| Accounting integration | Native: payroll posts to the same ledger | Export and import, or a separate connector |
| Data ownership | Self-hosted; you own the data | Vendor cloud |
| Customisation | Full: components, formulas, custom reports | Limited to the vendor's options |
| Statutory coverage | PF, ESI, PT, LWF via India Payroll (v16); TDS and gratuity in Frappe HR | Usually built in, vendor-maintained |
| Fits | Companies wanting HR, payroll and finance in one owned system | Teams that only need payroll and want no setup |
If payroll is all you need and you want nothing to configure, a hosted payroll product is the easier start. Once you want payroll, HR and accounting in one reconciled system, without a per-head fee that grows with headcount, ERPNext is the better long-term base. The same trade-off shows up across the suite; see ERPNext vs Zoho for Indian SMEs for the wider comparison.
When ERPNext HR is the right call
ERPNext HR and payroll make most sense when:
- You already run (or plan to run) ERPNext for accounting, inventory or manufacturing and want HR on the same platform.
- Your headcount is growing and per-employee fees are becoming a real line item.
- You operate across several states and need state-specific PT and location-aware rules.
- You want payroll data and the general ledger to reconcile without manual effort.
- Data ownership and custom reports matter to you.
It is less compelling for a very small team that needs nothing beyond a salary slip and has no appetite for setup. There, a turnkey payroll app wins on day one.
How MithTech sets this up
We deploy and configure Frappe HR as part of an ERPNext implementation: salary structures for your CTC model, the statutory components for your states, attendance integration with your devices, the leave policy, and the payroll-to-accounting mapping. MithTech is a team of Frappe specialists in Bengaluru, working with organisations across India on multi-state payroll, multi-branch HR and the ledger integration behind them. See ERPNext in Bangalore for local delivery, or read how we run an ERPNext implementation.
Frequently asked questions
+Is ERPNext HR and payroll free?
There is no licence fee. Frappe HR, the India Payroll app and ERPNext are open source, with no per-employee charge. Your costs are implementation (salary structures, statutory components and integrations) and hosting on infrastructure you own. That is structurally different from payroll software sold as a monthly fee per employee.
+Does ERPNext support PF, ESI and professional tax for India?
Yes. On v16, Frappe's India Payroll app adds Provident Fund (employee and employer contributions with the EPS wage ceiling), ESI (with the wage threshold and both contributions), state-specific professional tax and Labour Welfare Fund. On earlier versions they are configured as salary components. Because rates, slabs and the wage definition change, set them up to the current notifications and update them when the rules change.
+Can ERPNext calculate TDS on salary?
Yes. Frappe HR computes income-tax deduction at source on salary from each employee's projected annual income, declared investments and chosen tax regime, then spreads the liability across pay periods so the monthly salary slip shows the TDS. From 1 April 2026 the provision is section 392 of the Income-tax Act, 2025. Employee tax declarations and proofs are captured in the system.
+Does payroll post to accounting automatically in ERPNext?
Yes, and that is the main advantage. A Payroll Entry generates the salary slips and the accounting entries, so salary cost, PF, ESI, PT and TDS payables and net pay are booked to the same general ledger as the rest of your finances. Payroll and accounts reconcile by design rather than through manual export.
+Can ERPNext handle employees across multiple states?
Yes. Professional tax and some other rules are state-specific, and Frappe HR supports state-level deduction components, so a company employing people in Karnataka, Maharashtra and elsewhere can apply the right PT slab per location while running one payroll.
+How long does it take to set up ERPNext payroll?
Payroll is usually configured as part of a broader ERPNext go-live, so the time depends on that project. For payroll itself it depends on how complex your CTC structures are, how many states you cover and how attendance is captured. Estimate your price for your headcount and structures.
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Manoj · Published on 27 June 2026
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