End of the year payroll checklist needed for SMEs & Startups?

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Hi members,

Can anyone share suggestions or list of end of the year payroll checklist needed for SMEs & Startups?

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From a governance and compliance perspective, payroll year-end is an important activity for HR or Payroll Managers in any organization.

Income Tax

Usually, Financial year end is a busy season for HR/Payroll/Accounting professionals. Transaction and query load can be too high. If employees are not rightly educated about Income Tax processes, chances are there to ignore investments and end up paying higher tax in one or two months. This may even land up in a situation like lower take home from Jan to March.

  1. Unlike many other countries, the year-end process involves income tax proof collection in India. Every employer is supposed to collect the proof documents towards income tax savings declared by employees before 31 March. As this process takes time, better to give strict timelines to various parties (employee, verification team, etc.)
  2. Check whether the investment proof documents submitted match with the declaration, or not. If not matching, recalculate the tax amount and deduct accordingly. Re-compute the income tax liability based on the investment proof collection and verification from January onwards and re-adjust deductions in the next two months.
  3. If the investment proof submitted is above the declared amount and produced evidence, the TDS for two months may be less or zero. If this is not taken care of before 31 March, then the employee has to wait for a refund from the IT department till return filing.
  4. Make sure that the tax exemption shall be given to employees only after checking and validating investment proof documents. Also keep track of the latest amendments and guidelines by the Income Tax Department, Auditors, and other statutory agencies.

Tax Filing / Returns

While processing the monthly salary, TDS would be deducted by the employer. Every organization is bound to deposit the tax and file Form 24Q, quarterly.

  1. Make sure that all the previous quarters (April - June, July - September, Oct-Dec) are filed and no discrepancies.
  2. Get ready with final TDS calculations for the last quarter Jan - March (remember, 31 May is the due date of filing Q4). Consider the scenarios of recalculation when there is no match with actual proofs and tax declaration by employees.

Bookkeeping - Closure of Salary, and Statutory expenses

By the end of 31 Mar, organizations are supposed to close expenses like Salary payout, TDS, Social Security contributions like EPF and ESI, Professional Tax payments (PT), Labour Welfare Fund (LWF) payments, other outstanding payments like arrears, reimbursements, etc.

  1. The EPF contribution deducted from employers and employees shall be paid every month and the annual return would be due on 25 April. So before 31 March, check for pending issues, discrepancies if any, and close this.
  2. The ESI half yearly return from 1 Oct to 31 March is due on 12 May. Contributions shall be filed within 42 days of the end of each half-year. So before 31 March, check for pending issues, discrepancies if any, and close this.
  3. Professional Tax (PT) is not applicable in all states and is not following FY like Income Tax. Organizations are supposed to deduct and deposit PT, monthly. So from a payroll accounting perspective, make sure that PT computation and accounting are complete by 31 March.
  4. Labour Welfare Fund (LWF) is a one-time payment by organizations. Like PT, LWF also state specific and organizations are supposed to compute and deposit this amount, annually. Unlike IncomeTax, LWF is also not strictly following FY. However from a payroll accounting perspective, make sure that LWF calculation and accounting is complete by 31 March.
  5. Make sure that you have cleared and provisioned expenses for all the full and final settlements for those who are relieved on 31 March.
  6. Check and validate that all approved payments towards overtime claims in the FY are cleared by 31 March.
  7. Check and confirm that payments on behalf of pending attendance regularizations, revocation of disciplinary actions, payment due on account of clerical errors are all settled and accounted for by 31 March.

Paid Leave Accounting

In India, organizations follow a calendar year or financial year for leave accounting. As holidays are typically, calendar year based, a lot of organizations follow calendar year for leave accounting as well. However some organizations prefer financial year based leave accounting as it simplifies the overall payroll year ending process. This is applicable only for those following FY based leave accounting.

  1. Make sure that Annual Leave or Earned Leave policies are intact (finalize all sorts of changes in policy, tweaks in checks and balances etc) by 31 March
  2. Make sure that Maternity Leave entitlements within the Fy are accounted for by 31 March.
  3. Get all pending leave applications cleared by 31 March.
  4. If there is an auto encashment policy, make sure that it is completed by 31 March.
  5. If there is a lapse policy, make sure that it is completed by 31 March.
  6. Make sure that leave accounting is proper for all new joinees.

Form 16

Form 16 is the certificate of deduction of tax at source and issued on deduction of tax by the employer on behalf of the employees. These certificates provide details of TDS for various transactions between deductor and deductee. It is mandatory to issue these certificates to all Taxpayers.

  1. All employers are supposed to generate Form 16 for employees for a financial year and the due date is 15 June.
  2. To issue Form 16, the employer shall file the Form 24Q for the last quarter (Jan - March). So make sure that tax deductions and deposits are done properly.

Check and update data

It is quite usual to find gaps in employee data. However it is recommended to clear all such gaps by 31 March.

  1. Employee information like, dependent details, nominee particulars, PAN, Aadhar etc.
  2. Take a decision on any wage restructuring or revision (with retrospective effect) that is still under review but likely to be accepted in the FY.
  3. Investment proofs pending (if any)
  4. Try to find resolutions for the grievances filed concerning data discrepancy or updates (if the employee does the request directly) with Income Tax, and Social Security agencies.
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Thank you @Sree for the detailed note. The team compiled and published the post and checklist too for anyone who is looking for these details specifically.

Read more here:

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