Odoo Payroll India 2026: PF, ESI, PT & TDS Setup Guide

Payroll compliance India is not a single rule. It is five separate statutory obligations, each with its own registration, rates, deadlines, and penalties. Miss one, and government notices follow. Two major changes in 2026 have made correct setup more critical than ever: the Labour Code 50% wage rule (November 2025) and the Income Tax Act 2025, which replaced Form 24Q with Form 138 from April 1, 2026.

The good news is that Odoo 18 and Odoo 19's Indian payroll localization handles all five components EPF, ESI, Professional Tax, TDS, and LWF natively. This guide covers PF ESI compliance India configuration inside Odoo, statutory compliance payroll India deadlines, and the reports you need to file every month.

What Changed in Indian Payroll Compliance in 2026

Two regulatory changes took effect in 2025 and 2026 that directly affect every Indian payroll configuration. If your Odoo setup predates these changes, action is required before your next payroll run.

Labour Code 2026: the 50% Wage Rule

The four Labour Codes were implemented in November 2025, consolidating 29 older laws. The critical payroll impact is the 50% wage rule: basic salary plus dearness allowance must now be at least 50% of total CTC. This is mandatory, not optional.

Many businesses previously kept basic at 20 to 30% of CTC to minimise PF liability. This structure now triggers retrospective PF dues, interest, and penalties during EPFO inspections. If you are also using automated actions in Odoo 18 to trigger payroll workflows, verify those actions use the updated salary structure.

Income Tax Act 2025: Form 138 Replaces Form 24Q

From April 1, 2026, the Income Tax Act 2025 is in force. TDS on salary now falls under Section 392(1), not Section 192. The quarterly TDS return is now Form 138, not Form 24Q. The annual employee TDS certificate is now Form 130, not Form 16.

India's Statutory Payroll Framework: the 5 Components

Statutory compliance payroll India covers five separate obligations under different central and state laws. While PF builds long-term retirement savings for employees, ESI covers short-term medical and sickness benefits both are mandatory under separate central laws. PF ESI compliance India alone accounts for two of the five components; Professional Tax, TDS, and LWF add three more layers.

Setting Up Odoo Indian Payroll Localization (Step-by-Step)

The Odoo 18 payroll module India localization handles all five statutory components once correctly configured. Follow this sequence exactly, because each step activates features used in the next. Before you begin, ensure employees are set up: see our guide on how to create an employee and assign them to a department, and manage users in Odoo so your payroll team has correct permissions.

1

Install the India Payroll Module

Go to Apps, search for India Payroll, and install. The module activates India-specific salary structures, employee statutory fields (UAN, ESIC number, PAN), and the Indian Payroll Settings section in Configuration. Since Indian payroll localization is generally used with Enterprise features, businesses evaluating deployment options should also compare Odoo Community vs Enterprise before implementation.

2

Enter Employer Registration IDs

Go to Payroll → Configuration → Settings → Indian Payroll. Enter your EPF Employer ID, ESIC Employer Code (10-digit), and PT registration esic.gov.in before this step if not already done.

Note

If these fields are left blank, EPF, ESI, and PT deductions will not appear in employee payslips.

3

Choose the PF Calculation Method

Odoo offers two options: Cap at ₹15,000 basic (max ₹1,800/month) or calculate on actual basic (higher retirement savings). Most businesses use the cap; IT firms often choose actual as an employee benefit. Also add bank account details at this stage, see our guide on adding a bank account in the Odoo 18 employee app.

4

Configure Salary Structure for the 50% Wage Rule

Go to Payroll → Configuration → Salary Structures. Set basic salary as a formula equal to minimum 50% of CTC. HRA is typically 40 to 50% of basic (50% for metro cities). Special allowance makes up the remainder. Have your CA review and sign off before the first payroll run.

Configuring PF (Provident Fund) in Odoo

Once the localization is installed, the Odoo salary rules PF ESI India setup is largely automatic. Here is what to verify and where to act.

PF Salary Rules in Odoo

The India Payroll module creates two salary rules automatically: employee 12% of basic, and employer 13% total. Go to Payroll → Configuration → Salary Structures → India: Regular Pay to verify both rules are active. For how the Payroll module fits within the broader Odoo ecosystem, see key Odoo modules and how they connect. The module architecture applies across industries even though that post uses a manufacturing context.

UAN Number in Employee Records

The UAN number Odoo employee India field is in the employee profile under Private Information → UAN. The UAN is a 12-digit EPFO identifier assigned to each employee for life. Without a UAN, Odoo cannot generate the ECR file. For new hires, collect the UAN or generate one via the EPFO Unified Portal before their first payslip.

Generating and Exporting the EPF ECR File

After confirming the monthly payslip batch, go to Payroll → Reporting → EPF Report. Odoo generates the ECR (Electronic Challan cum Return) file in XLSX format. The EPF ECR file Odoo India export contains a UAN-wise breakdown of contributions. Upload to the EPFO Unified Portal by the 15th of every month.

Configuring ESI in Odoo

The ESI salary limit India 2026 is ₹21,000 gross per month. Employees earning above this amount are excluded from ESI. Odoo automatically applies this threshold, so when an employee's gross salary in their contract exceeds ₹21,000, the ESI salary rules return zero deduction on the next payslip.

The ESI threshold 2026 India payroll calculation uses 0.75% employee + 3.25% employer. ESI contribution periods run half-yearly: April to September and October to March. Refer to esic.gov.in for the official wage ceiling notification.

To generate the ESI challan, go to Payroll → Reporting → ESI Report. Download the XLSX and upload to the ESIC portal by the 21st of every month.

Professional Tax in Odoo: State-Wise Slab Setup

Professional Tax India payroll is a state-level tax with a maximum of ₹2,500 per year. Delhi, Haryana, and Rajasthan do not levy PT. Odoo reads the employee's state from their contract and automatically applies the correct slab. Enter your PT registration number in Payroll → Configuration → Settings → Indian Payroll. You can set filing date reminders using automated actions in Odoo 18.

PT State-Wise Slab Table (FY 2026-27)

Karnataka Professional Tax: Additional Surcharge and Compliance Considerations

Karnataka Professional Tax rates are revised periodically through state budget notifications, making annual review essential. Businesses should validate PT slabs at the beginning of every financial year to ensure payroll deductions remain compliant. In Odoo, reviewing salary rules and testing payroll calculations each April helps prevent under-deduction and audit issues.

Maharashtra Professional Tax: Understanding the February ₹300 Anomaly

Maharashtra follows a unique Professional Tax structure where employees earning above the prescribed threshold pay ₹200 per month for most of the year, but ₹300 in February. This additional deduction ensures the annual Professional Tax contribution reaches the statutory ceiling of ₹2,500. Payroll teams migrating from legacy systems should verify that this February adjustment is correctly configured in Odoo.

Handling Multi-State Payroll in Odoo

For companies with employees across states, Odoo manages PT automatically. An employee in Maharashtra pays ₹200/month, a colleague in Karnataka pays under a different slab, and an employee in Delhi pays nothing, all handled in a single payroll run. If an employee relocates between states, update the contract state field and Odoo applies the new slab from the next payslip.

TDS on Salary in Odoo: Old vs New Regime + Form 138

TDS on salary India section 192 2026 is now Section 392(1) under the Income Tax Act 2025. Odoo calculates TDS by projecting each employee's annual taxable income from their contract CTC, declared exemptions (80C, HRA, 80D), and chosen tax regime. The annual projected tax is divided equally across the remaining months of the FY and deducted monthly. Businesses that also deduct tax on vendor payments or collect tax on sales can review our detailed guide on Odoo India TDS and TCS compliance for broader Indian withholding tax scenarios.

From April 2026, the new tax regime is the default. Employees who want old-regime deductions must submit a signed declaration. Collect declarations from all employees every April and store them against the employee contract in Odoo. The Income Tax India portal has official regime comparison and declaration forms.

Labour Welfare Fund (LWF) in Odoo

The labour welfare fund India applies in approximately 16 states. Delhi, Haryana, and Rajasthan do not levy LWF. Most states follow a semi-annual schedule with contributions due in June and December.

Enter your LWF establishment number in Payroll → Configuration → Settings → Indian Payroll and set state-wise contribution amounts. Verify LWF applicability for every state where you have employees at setup.

Statutory Reports in Odoo: Generate, Export, and File

After confirming each monthly payslip batch, all statutory reports are available directly from the Payroll module, formatted for direct portal upload. The Odoo EPF report India and Odoo ESI report India are the two you will run every month without exception. You can also track payroll-related expenses directly from your accounting workflow after payroll journals are posted.

India Payroll Compliance Calendar + Penalty Table (2026)

Missing a statutory deadline does not produce an immediate penalty it produces silently accumulating interest and penalties that most businesses discover only during an inspection or audit.

Compliance Deadline Calendar

ESI PF TDS Penalty India: What a 30-Day Delay Actually Costs

Review payroll liabilities regularly so delayed PF, ESI, or TDS payments do not create hidden statutory exposure in your books.

5 Payroll Compliance India Mistakes That Trigger Government Notices

Odoo Payroll and Accounting Integration

The strongest argument for running payroll inside Odoo rather than a standalone tool is the accounting integration. When a payslip batch is confirmed in Odoo, the system automatically creates journal entries: debiting salary expense accounts and crediting EPF payable, ESI payable, TDS payable, PT payable, and salary payable. Businesses already managing GST compliance in Odoo should ensure payroll journals align with their accounting and tax setup; our guide on Odoo India GST, e-Invoicing, and e-Way Bill explains how Indian tax processes integrate across finance operations.

For businesses with project-based billing, Odoo's analytic accounts tag each payslip line to the correct department or project automatically. Compared to Greytip, Keka, or HROne, where salary journal entries must be entered manually into accounting each month, Odoo payroll automation India eliminates this bottleneck entirely. See our guides on financial statement analysis, purchase order processing in Odoo, and tracking expenses in Odoo.

Frequently Asked Questions