Salary Journal Entries: Salary Payable, PF, ESI and TDS (with Examples)

Recording salary looks simple until deductions enter the picture. A single salary slip can create five or six balances in the books: net pay to the employee, employee and employer PF, ESI, professional tax and TDS, each with its own due date. This guide builds the entries step by step, from the textbook entry to a full month's payroll for a small team, then covers outstanding and advance salary, recoveries and the common mistakes that leave payables that never clear. For the bigger picture of accounts and the month-end close, see our guide to payroll accounting in India.

The basic salary paid journal entry

Under the traditional golden rules, salary is a nominal account, so the expense is debited; cash is a real account (credit what goes out) and bank is a personal account (credit the giver), so either way the payment is credited. If salary of ₹40,000 is paid by bank transfer on the same day it falls due, the entry is:

Under the modern approach the result is the same: salary is an expense (debit increases it) and bank is an asset (credit decreases it). This is the entry taught in Class 11 accountancy, and it is correct where no deductions apply and salary is paid as soon as it falls due. Paid in cash, the credit goes to Cash A/c instead; the Code on Wages allows wages in cash, by cheque or by bank credit, but cash payments to one person above the income-tax limit in a day can be disallowed as a business expense, so bank transfer is the norm.

Salary payable: recording salary before it is paid

Most businesses pay salary in the following month: October salary must be paid before the end of the seventh day of November under the Code on Wages (see our salary payment rules guide). Because the expense belongs to October, it is recorded at the end of October as a liability, salary payable, and cleared when it is paid.

When salary falls due (31 October)

When salary is paid (5 November)

Which account is salary payable? It is a current liability: an amount owed to employees and payable within a few days. It is also called outstanding salary or salaries payable. Salary itself is an expense in the profit and loss statement, shown within employee benefits expense; salary payable is the unpaid part shown in the balance sheet.

Salary entry with PF, professional tax and TDS deductions

Deductions are not expenses. The employer withholds them from the employee's pay and owes them to someone else, so each one becomes its own liability. Take Riya, whose October 2026 salary is:

The employer here contributes PF on wages up to the ₹25,000 ceiling, which applies from 17 September 2026 (our PF wage ceiling guide explains the change). Riya's gross is above ₹21,000, so ESI does not apply to her. The entry when October salary is processed is:

The expense is the full ₹40,000, because that is what Riya earned. Only ₹35,300 goes to her bank account; the other ₹4,700 is held for the PF trust, the State and the Income Tax Department. Our guide to payroll deductions explains how each deduction is calculated.

Employer's PF contribution and charges

The employer pays its own 12% on top of salary. For Riya that is ₹3,000, split into ₹2,083 for the pension scheme (EPS, 8.33%) and ₹917 for her EPF account, plus EDLI insurance at 0.5% (₹125) and PF administration charges at 0.5% (₹125) on her PF wages (EPFO). These are the employer's costs, so they are debited to expense accounts:

PF payable now holds ₹6,250 for Riya: her ₹3,000, the employer's ₹3,000 and ₹250 of charges. Administration charges are subject to a minimum of ₹500 a month per establishment, so a very small employer may pay more than 0.5%. Some businesses debit everything to one account called Contribution to provident and other funds; separate accounts make the PF reconciliation easier.

Employee covered by ESI

Arjun earns a gross of ₹18,000, so he is within the ₹21,000 ESI limit. Employee ESI is 0.75% and employer ESI 3.25% (ESIC contribution rates). His PF wages are ₹15,000, so the employer's PF of ₹1,800 splits into ₹1,250 for EPS and ₹550 for EPF, with EDLI and administration charges of ₹75 each; he is below the Karnataka professional tax threshold.

ESI is worked out on gross pay here, as many employers still do; the Labour Ministry's view is that ESI applies to wages as defined in the Labour Codes, which can give a lower figure (see our ESI guide). The ESI entries are:

and, for the employer's share:

Full month's payroll journal entry

In practice one summary entry is posted from the payroll register for all employees. For Riya and Arjun together, with employer PF of ₹4,800, EDLI of ₹200 and administration charges raised to the ₹500 establishment minimum, the October 2026 entry is:

The total cost of employing the two for October is ₹64,085: ₹58,000 of gross salary plus ₹6,085 of employer contributions and charges.

Payment entries and due dates

Each liability is cleared by its own payment. For October 2026 payroll:

TDS for March is due by 30 April instead of 7 April. The PF challan and ESIC challan guides cover the payment process. After these entries every payable for October is nil; a balance left over means a short payment, a missed challan or a posting error.

Other salary entries you will need

Outstanding salary at the year end

March 2027 salary paid in April 2027 must still be recorded in 2026-27. The entry at 31 March is the same accrual entry as any other month; the difference is that the closing salary payable, and the PF, ESI, professional tax and TDS payables, appear in the balance sheet as current liabilities. When April payments are made, they are debited to those liabilities, not to the new year's salary expense. Year-end provisions for bonus, gratuity and leave are a separate exercise, covered in our payroll accounting guide.

Salary advance and its recovery

An advance paid to Riya on 15 October is an asset, because she owes it back:

If the full ₹5,000 is recovered from October salary, the payroll entry credits Salary advance A/c ₹5,000 and Salary payable falls to ₹30,300. Salary expense stays at ₹40,000, because recovering a loan does not change what Riya earned. The same approach applies to staff loans and other recoveries.

Salary paid in advance

If November salary is paid on 28 October, it is not October's expense. Debit Prepaid salary A/c and credit Bank; in November, debit Salary A/c and credit Prepaid salary A/c when the expense falls due.

Loss of pay, arrears and reimbursements

Loss-of-pay days simply reduce gross salary for the month; there is no separate entry. Arrears from a pay revision are recorded as salary expense when approved, with PF and ESI on them; our salary arrears calculator works out the amounts. Reimbursements paid through payroll, such as travel or telephone, are debited to the expense they relate to rather than to salary.

How to pass a payroll journal entry: step by step

1. Finalise the payroll register after attendance, loss of pay, arrears and recoveries are entered.
2. Total each column: gross salary, each deduction, net pay and each employer contribution.
3. Debit expenses: gross salary to Salary A/c, and employer PF, EDLI, administration charges and ESI to their expense accounts.
4. Credit liabilities: net pay to Salary payable, and each deduction and employer contribution to its own payable account.
5. Check the entry balances and that net pay agrees with the bank transfer file.
6. Post the payment entries as salary, TDS, PF, ESI and professional tax are paid, and confirm each payable returns to nil.

Is salary capex or opex?

Salary is normally revenue expenditure (opex): it is charged to the profit and loss statement in the period the employees work, within employee benefits expense. The exception is staff cost directly attributable to building or installing an asset, such as engineers working on a new plant or developers building software that the company will capitalise. Under the accounting standards for fixed assets and intangible assets, those costs are included in the asset's cost (for software, only development-phase costs that meet the intangible-asset recognition criteria). The journal then debits the asset (or capital work in progress) instead of salary expense; the payables side does not change. Only costs that clearly relate to the asset qualify, so general administration salaries stay in opex.

Payroll register vs payroll journal

The payroll register is the month's detailed sheet: one row per employee with earnings, deductions and net pay. The payroll journal is the summary entry that posts the register's column totals to the general ledger. A good journal template mirrors the register:

• Debits: gross salary (or separate heads such as basic, allowances, overtime), employer PF, EDLI and administration charges, employer ESI.
• Credits: net salary payable, PF payable, ESI payable, professional tax payable, TDS payable, and recoveries such as salary advance or staff loan.
• Checks: total debits equal total credits; net salary equals the bank transfer file; each payable equals its challan.

Accounting software such as Tally Prime records this as a journal voucher or through its payroll module; the accounts and amounts are the same as above.

Common mistakes in salary journal entries

• Debiting only net pay to salary: this understates salary expense and leaves PF, ESI and TDS with no liability to clear.
• Treating the employer's PF as a deduction: the employer's share is an extra cost and must be debited to an expense account, not taken from the employee's pay.
• One "statutory dues" account: lumping PF, ESI, PT and TDS together makes it impossible to see which challan is unpaid.
• Booking salary when paid instead of when earned: this moves expense into the wrong month and the wrong year.
• Recording advance recovery as a reduction of salary expense: it should reduce the advance, not the expense.
• Paying PF and ESI late: interest and damages apply under the PF and ESI laws from the day after the due date. For income tax, from 2026-27 the employee's share is allowed only if deposited by the return due date; see payroll penalties.

Frequently asked questions

What is the journal entry for salary paid?

When salary is paid directly, debit Salary account and credit Bank (or Cash). In most businesses salary is first recorded as due at the month end, debiting Salary and crediting Salary payable, and the payment entry then debits Salary payable and credits Bank.

What is salary payable?

Salary payable is the net salary that employees have earned but not yet been paid. It is a current liability that appears in the balance sheet when the books are closed before the salary is paid, such as March salary paid in April.

Is salary paid an expense?

Salary is an expense for the period in which employees work, whether or not it has been paid. The payment itself is not a new expense; it only settles the salary payable liability. Salary is normally revenue expenditure (opex), except where employee costs are directly attributable to building an asset and are capitalised with it.

How do you record PF, ESI and TDS deducted from salary?

Debit Salary with the gross pay and credit separate liability accounts for each deduction, such as PF payable, ESI payable, professional tax payable and TDS payable, with the balance credited to Salary payable. When the amounts are deposited, debit each liability and credit Bank.

Where does the employer's PF contribution go in the journal entry?

The employer's share is an extra cost, not a deduction from salary. Debit an expense account such as Contribution to provident and other funds and credit PF payable, together with EDLI and administration charges, then clear PF payable when the challan is paid.

How do you accrue payroll at the month end?

On the last day of the month, post the payroll journal from the register even though salary will be paid in the next month: debit salary and employer contribution expenses, and credit salary payable and the PF, ESI, professional tax and TDS payables. If payroll is not final in time, accrue an estimate based on the previous month and reverse it when the actual entry is posted.

What is the difference between a payroll register and a payroll journal?

The payroll register lists each employee's earnings, deductions and net pay for the month. The payroll journal is the summary accounting entry that posts the register's totals to the general ledger, debiting expense accounts and crediting payables.

Position as of 15 November 2026. Rates and due dates as they apply to private-sector employers; PF wage ceiling of ₹25,000 from 17 September 2026. Examples are simplified and use Karnataka professional tax; follow your accounting standards and your auditor's guidance for presentation. General information, not accounting, tax or legal advice.