Payroll in Tally Prime: Setup, Pay Heads and Reports

Many small and mid-sized Indian businesses already keep their accounts in Tally, so running payroll in the same software is a natural step: salaries, deductions and employer contributions post straight to the ledgers, and the statutory reports come from the same data. This step-by-step guide walks through the complete payroll setup in TallyPrime, from enabling the feature to monthly processing and reports, with the pay heads you need for PF, ESI, professional tax and TDS, a worked example and practice questions. Menu names follow TallyPrime release 7.x as described in TallyHelp's payroll section; earlier releases may differ slightly. If you only want to post a monthly salary journal without using the payroll module, our salary journal entry guide shows the accounting entries.

What is payroll in TallyPrime?

Payroll in TallyPrime is a module that calculates employees' salaries from a defined salary structure and attendance, deducts PF, ESI, professional tax, NPS and income tax, works out the employer's contributions, and records all of it in the books through payroll vouchers. It is integrated with accounting: each pay head is linked to a ledger, so the salary expense, the payables and the bank payment appear in the trial balance without a separate journal.

Its main features are:

• Employee masters with groups, categories, bank details and statutory numbers (PAN, Aadhaar, UAN, PF and ESI numbers, PRAN).
• User-defined pay heads for earnings, deductions, reimbursements, loans and advances, gratuity and employer contributions, calculated on attendance, production, a flat rate or a formula.
• Attendance and production vouchers for salaried staff, daily-wage workers and piece-rate labour.
• Autofill to process salary, attendance and statutory contributions for all employees in one voucher.
• Reports: payslips, pay sheet, payroll register, attendance register, and statutory reports for PF (including the ECR file), ESI, professional tax, NPS, income tax and gratuity.

Before you start: what you need

• Company details: PF establishment code, ESI employer code, professional tax registration (if applicable) and TAN.
• Employee data: name, date of joining, designation, department, bank account and IFSC, PAN, Aadhaar, UAN, PF and ESI numbers, and the tax regime chosen.
• Salary structure: each component (basic, DA, HRA, special allowance and so on) and how it is calculated. Under the Labour Codes, the PF and gratuity wage base must follow the wage definition and its 50% rule; see our salary structure guide.
• Policies: working days, leave types, loss-of-pay rules and overtime rates, which decide how attendance-based pay heads are set up.

Step 1: Enable payroll and statutory features

1. Open the company and press F11 (Features).
2. Set Maintain Payroll to Yes (TallyHelp: enable payroll).
3. For Indian statutory payroll, set Enable Payroll Statutory to Yes and enter the company's PF, ESI, NPS, professional tax and income-tax details as prompted.
4. Press Ctrl+A to save.

Payroll vouchers (Payroll and Attendance) become available only after payroll is enabled.

Step 2: Create employee groups and categories

Employee groups organise employees by department or function (Production, Sales, Administration) and make reports and autofill easier. Employee categories are an optional higher level, useful for locations or cost centres. Create them from Alt+G (Go To) > Create Master, choosing Employee Category or Employee Group. A group can also be created on the fly from the Under field when creating an employee.

Step 3: Create payroll units and attendance types

Attendance types tell TallyPrime what to count. Create them from Alt+G > Create Master > Attendance/Production Type:

• Present (Attendance/Leave with Pay), in days, for salaried staff.
• Absent or Leave without pay (Leave without Pay), to reduce pay for loss-of-pay days.
• Overtime (Production type), in hours, for overtime pay.
• Pieces or other production units for piece-rate workers.

Payroll units such as Days and Hours are created first if they do not exist.

Step 4: Create the payroll ledgers

Pay heads post to ledgers, so create the payables before the pay heads (Alt+G > Create Master > Ledger):

Some businesses use Provisions or Duties & Taxes for these; follow your chart of accounts, but keep one payable per authority so each can be reconciled with its challan.

Step 5: Create pay heads

Pay heads are the salary components. Create each from Alt+G > Create Master > Pay Head (TallyHelp: earnings pay heads). The key fields are:

• Pay head type: such as Earnings for Employees, Deductions from Employees, Employees' Statutory Deductions, Employer's Statutory Contributions, Employer's Other Charges, Bonus, Gratuity, Loans and Advances, or Reimbursements to Employees.
• Income type: Fixed or Variable.
• Under: the accounting group, usually Indirect Expenses for earnings and Current Liabilities for deductions.
• Affect net salary: Yes for components that change take-home pay.
• Name to be displayed in payslip and Use for calculation of gratuity.
• Calculation type: On Attendance, As Computed Value, Flat Rate, As User Defined Value or On Production.
• Attendance/leave with pay, calculation period and per-day basis (as per calendar period, user defined, or user defined calendar type), plus rounding.

A typical set of pay heads for an Indian salary structure:

Check the PF pay heads against the current rules: the PF wage ceiling is ₹25,000 a month from 17 September 2026 (see our PF wage ceiling guide), and the PF wage base must follow the Labour Codes' definition of wages. If your release does not apply these automatically, adjust the computation slabs, and confirm after every TallyPrime update.

Step 6: Create employees

1. Press Alt+G > Create Master > Employee (TallyHelp: create employees).
2. Enter the name (as it should appear on the payslip), select the group under Under, and enter the date of joining.
3. Fill in general information: employee number, designation, location, gender, date of birth and address.
4. Enable Provide bank details and enter the account number, IFSC and bank, so salary can be paid by e-payment.
5. Enter statutory details: PAN, Aadhaar, UAN, PF number, ESI number, PRAN (for NPS) and the income-tax regime.
6. Enable Define salary details to set the salary structure straight away, then press Ctrl+A.

For many employees, use Alt+G > Chart of Accounts > Employees and Alt+H (Multi Masters) > Multi Create.

Step 7: Define salary details

Salary details link pay heads to an employee or group, with the amount or rate and an effective from date. Defining a structure at group level saves time when many employees share it; individual employees can then be altered. When salaries are revised, add a new line with the new effective date rather than overwriting the old one, so history and arrears remain correct.

Step 8: Record attendance

1. Press Alt+G > Create Voucher, press F10 (Other Vouchers) and select Attendance.
2. Press Ctrl+F (Autofill), choose Attendance Autofill, select the employee group and attendance type, and enter the default value (for example, 30 days present).
3. Edit the days for employees with leave without pay or other changes, then press Ctrl+A.

Record overtime hours and production quantities in the same way with their production types. (TallyHelp: attendance vouchers.)

Step 9: Process salary with the payroll voucher

1. Press Alt+G > Create Voucher and press Ctrl+F4 (Payroll).
2. Press Ctrl+F (Autofill), select Payroll Autofill, set Process for to Salary, and enter the period.
3. Select the employee category and group, and choose the sort order.
4. Under Payroll/Bank/Cash Ledger, select Salary Payable to accrue the salary (select the bank instead only if you pay in the same entry).
5. Review the calculated amounts for each employee, add a narration and press Ctrl+A.

This accrual is the same as the accounting entry described in our salary journal entry guide: earnings pay heads are debited as expenses; PF, ESI, PT and TDS are credited to their payables; and net pay is credited to Salary Payable. (TallyHelp: salary accrual.)

Step 10: Process employer PF and ESI

1. Open another Payroll voucher (Ctrl+F4) and press Ctrl+F.
2. Select PF Contribution from the process list, choose the PF Payable ledger and save. Repeat with ESI Contribution (and NPS Contribution if applicable).
3. For PF administration and EDLI charges, open a Journal voucher (F7), press Ctrl+F, choose PF Other Charges, select the PF Admin Expenses ledger and the admin and EDLI pay heads, and save.

(TallyHelp: PF process.) The ₹500 minimum for PF administration charges applies per establishment, so check the computed figure for a small payroll.

Step 11: Pay salary and statutory dues

• Salary: record a Payroll or Payment voucher that debits Salary Payable and credits the bank, using autofill to bring in each employee's net pay. TallyPrime can also generate a payment advice or bank file for e-payment.
• PF, ESI, PT and TDS: record Payment vouchers (F5) clearing each payable when the challan is paid, by the 15th for PF and ESI and by the 7th for TDS (30 April for March).
• Salary advances: pay through a Payment voucher to the employee's advance, and recover through the Loans and Advances pay head in later payroll.

Due dates for every challan are in our PF challan and ESIC challan guides.

Step 12: Payslips and payroll reports

From Display More Reports, open the payroll reports:

Statutory reports are under Display More Reports > Statutory Reports > Payroll Reports. Under the Income-tax Act, 2025, the quarterly TDS return on salary is Form 138 (earlier Form 24Q) and the annual certificate is Form 130 (earlier Form 16), issued from TRACES after the Form 138 data is processed; TallyHelp notes that the e-return for Form 138 has replaced E-24Q, with the old forms kept for earlier years (TallyHelp: e-TDS returns). See our Form 138 guide.

Daily-wage and piece-rate workers

TallyPrime handles workers who are not paid a fixed monthly salary through attendance and production types. For a daily-wage worker, create a Present attendance type and a Wages pay head with the calculation type On Attendance and a per-day rate; record the days worked in an Attendance voucher, and the payroll voucher multiplies days by the rate. For piece-rate work, create a production type (such as Pieces) and a pay head with the calculation type On Production at the rate per piece; record the quantity in an Attendance/Production voucher. In both cases make sure the result is not below the applicable minimum wage for the State and skill category; our minimum wages hub links to the State rates. Overtime hours are handled the same way with an Overtime production type.

Salary revisions and arrears in TallyPrime

When pay is revised, alter the employee's or group's salary details and add the new amounts with the date from which they apply. If the revision is backdated (Alt+G > Alter Master > Define Salary, with an earlier Effective From date), TallyPrime treats it as a retrospective revision; check how your release computes and posts the arrears, including PF, ESI and TDS on them, before processing (TallyHelp: increments and arrears). Keep the old structure lines rather than overwriting them; otherwise past payslips and the arrear calculation change. Our salary arrears calculator is a quick independent check.

Bonus, gratuity and reimbursements

Bonus can use TallyPrime's Bonus pay head type; other variable pay is usually a user-defined earnings pay head; both are entered in the month they are paid; reimbursements use Reimbursements to Employees pay heads so they are shown separately from salary and taxed only where the reimbursement is taxable. For gratuity, mark the pay heads that make up gratuity wages with Use for calculation of gratuity, create a Gratuity pay head, and use the Gratuity Summary report to see the amount payable based on service. The report shows what employees are owed; the accounting provision at the year end still comes from an actuarial valuation, as explained in our payroll provisions guide.

Worked example: one month's payroll in TallyPrime

A company sets up one employee, Riya, in October 2026 with this salary structure: Basic Pay ₹20,000 (On Attendance), HRA ₹8,000 (As Computed Value, 40% of Basic), Special Allowance ₹12,000 (On Attendance). Gross is ₹40,000. Her PF wages are capped at ₹25,000, she is above the ESI limit, she works in Karnataka, and her monthly TDS is ₹1,500.

1. Attendance voucher: 31 days present for October (no loss of pay).
2. Payroll voucher (Salary): Basic ₹20,000, HRA ₹8,000 and Special Allowance ₹12,000 are debited; Employee PF ₹3,000, Professional Tax ₹200 and Income Tax ₹1,500 are credited to their payables; Salary Payable is credited with ₹35,300.
3. Payroll voucher (PF Contribution): employer EPS ₹2,083 and EPF ₹917 debited, PF Payable credited ₹3,000.
4. Journal (PF Other Charges): EDLI ₹125 and administration charges debited to PF Admin Expenses (raised to the ₹500 establishment minimum where the total is lower), PF Payable credited.
5. Payments in November: Salary Payable ₹35,300 paid by 7 November; TDS ₹1,500 by 7 November; PF challan by 15 November; PT by 20 November.

The payslip for Riya then shows gross ₹40,000, deductions ₹4,700 and net pay ₹35,300, matching the payroll register and the bank payment. To reconcile these every month, follow our payroll reconciliation guide.

TallyPrime keyboard shortcuts used in payroll

Source: TallyPrime keyboard shortcuts.

Practice questions: payroll in TallyPrime

• Q1. Where is payroll enabled? In F11 (Features): Maintain Payroll and Enable Payroll Statutory.
• Q2. Which calculation type suits HRA at 40% of basic? As Computed Value, with Basic Pay as the computation base.
• Q3. How do you reduce basic pay for two days' leave without pay? Create a Leave without Pay attendance type, set Basic Pay to On Attendance, and record the days in the Attendance voucher.
• Q4. Which voucher records employer PF? A Payroll voucher with Autofill set to PF Contribution.
• Q5. Where are PF administration and EDLI charges recorded? In a Journal voucher (F7) using the PF Other Charges autofill.
• Q6. Which ledger is selected to accrue salary rather than pay it? Salary Payable, in the Payroll/Bank/Cash Ledger field.

Common errors when running payroll in Tally

• Pay head under the wrong group: an earnings pay head under a liability group puts salary cost in the balance sheet. Earnings belong under expenses.
• Affect net salary set wrongly: employer contributions should not reduce the employee's take-home pay.
• Attendance not recorded: On Attendance pay heads calculate nothing if no attendance voucher exists for the period.
• Old salary structure overwritten: revisions entered without a new effective date break arrears and history.
• Out-of-date statutory settings: after a change such as the ₹25,000 PF ceiling or a professional tax slab revision, update the pay heads or the release before processing.
• Payables not cleared: if PF or TDS payables carry balances after payment, the challan was booked to the wrong ledger or month.

Is TallyPrime the right payroll tool for you?

TallyPrime payroll works well for a business that already keeps its books in Tally, has a stable salary structure and wants payroll and accounts in one place. Larger or fast-growing teams often need features outside an accounting package, such as employee self-service, online investment declarations, leave approvals and mobile payslips; they may run payroll in dedicated software and post a summary journal in Tally. Whichever you choose, the statutory rules are the same; our payroll process guide sets out the monthly cycle.

Frequently asked questions

Does Tally have payroll?

Yes. TallyPrime has a built-in payroll module. Once Maintain Payroll is enabled in F11 (Features), you can create employees and pay heads, record attendance, process salary through payroll vouchers, and generate payslips and PF, ESI, professional tax and income tax reports, with the entries posted straight to your accounts.

How do I enable payroll in TallyPrime?

Press F11 (Features) and set Maintain Payroll to Yes. For Indian statutory deductions such as PF, ESI, NPS, professional tax and income tax, also set Enable Payroll Statutory to Yes and enter the company's statutory details.

Is Tally free or paid?

TallyPrime is paid software, sold as a perpetual (Regular) licence or a Rental licence, in Silver (single-user) and Gold (multi-user) editions; payroll is included. Without a licence it runs in Educational mode, which has all features but allows entries only on certain days of the month, so it suits learning, not live books.

What is Ctrl+D and Ctrl+R in Tally?

In TallyPrime, Ctrl+D removes an item or ledger line in a voucher. Ctrl+R removes a line from a report, and in a voucher it retrieves the narration from the previous voucher of the same type.

What is F7 used for in Tally?

F7 opens the Journal voucher in TallyPrime. In payroll it is used, among other things, to record PF administration and EDLI charges with the PF Other Charges autofill option.

Which is better for payroll, Tally or Zoho?

It depends on the business. TallyPrime suits a business that already keeps its books in Tally and wants payroll posted directly to its accounts. Cloud payroll software such as Zoho Payroll adds features like employee self-service, online declarations and approvals. Many small businesses run payroll in one and post the totals to the other.

Position as of 15 November 2026. Menu names and keys follow TallyPrime release 7.x as documented on TallyHelp and may differ in other releases. Statutory rates and due dates as they apply to private-sector employers. TallyPrime is a trademark of Tally Solutions Pvt. Ltd.; HR Calcy is not affiliated with it. General information, not accounting, tax or legal advice.