Year-End Payroll Checklist for India FY 2026-27: Complete Guide to Compliance & Reporting

A year-end payroll checklist helps HR and payroll teams close the financial year accurately by reconciling payroll, verifying statutory deductions, filing TDS and other applicable returns, issuing employee tax certificates, and preparing the system for the next financial year.

For FY 2026-27, the process also includes two important transitions. Under the Income Tax Act, 2025, Form 16 and Form 24Q move to Form 130 and Form 138 for FY 2026-27’s own year-end reporting cycle. The Labour Codes have also changed the treatment of full and final settlements, with wage dues required to be settled within the prescribed two-working-day timeline where applicable.

This guide breaks the process into four practical phases: pre-year-end preparation, the final March payroll run, post-year-end reporting, and new financial year setup. The checklist continues well beyond 31 March because several reporting and filing obligations fall in April, May, and June.

What is Year-End Payroll?

Year-end payroll is the process of closing out a financial year’s payroll cycle and confirming that payroll records, tax deductions, statutory contributions, payments, and reporting requirements all reconcile correctly.

For an Indian employer, this includes final tax calculations and compliance across TDS, PF, ESI, and Professional Tax. It also involves issuing Form 16 or its applicable successor under the new framework and confirming that payroll records match actual salary payments and statutory deposits.

The process broadly runs across four phases:

• Pre-year-end preparation (January – February): PAN verification, investment proof collection, and year-to-date reconciliation.

• Final payroll run (March): Final TDS calculations, bonus and perquisite processing, statutory verification, and full and final settlement.

• Post-year-end reporting (April – June): TDS returns, employee tax certificates, PF and ESI reporting, and Professional Tax compliance.

• New FY setup (April): Tax configuration, statutory wage checks, and fresh investment declarations.

Why is Year-End Payroll Different in India?

India’s payroll year runs from 1 April to 31 March. Unlike a simple salary close, employers also need to verify tax-saving investments and expenses employees declared earlier in the year, adjust TDS based on valid proof, and ensure compliance with both tax and labour-related obligations.

The Income Tax Department governs TDS, tax certificates, and investment declarations. Labour and social-security compliance covers wage-related obligations such as PF and ESI. That overlap is why a structured four-phase checklist works better than treating year-end payroll as one task completed in March.

Why is Year-End Payroll Important for Indian Businesses?

Year-end is where several months of payroll activity finally have to reconcile.

A wrong or delayed employee tax certificate, an incorrect TDS adjustment, or a PF contribution that wasn’t deposited on time can create more than a filing problem. Employees see these issues as mistakes involving their salary or savings.

Payroll teams also need to manage frequent statutory changes while maintaining accurate workforce reporting. The practical challenge is making sure regulatory updates reach payroll before the deadline does.

HR Tip:

A payroll system that tracks statutory changes and upcoming deadlines can reduce the amount of manual monitoring required during year-end. Keka’s compliance capabilities help teams keep payroll and statutory requirements in the same workflow.

What are the Key Year-End Payroll Dates for FY 2026-27?

The financial year runs from 1 April 2026 to 31 March 2027, but many year-end obligations are completed in the following financial year.

The exact applicability and filing dates should always be checked against the relevant current framework, especially during the FY 2026-27 transition period.

What Should Be Done Before the Financial Year Ends?

The best time to start year-end payroll is before March. By January and February, payroll teams should already be checking the information that will affect final TDS and statutory reporting.

Verify Employee PAN and Aadhaar Details

A missing or invalid PAN can affect the applicable TDS rate and create unnecessary reconciliation work later. Verify employee PAN details before the final payroll run rather than discovering mismatches while preparing tax certificates.

Employees should also be asked to update changes affecting payroll, such as address details, tax regime selection where applicable, or other information required for statutory reporting.

Collect and Verify Investment Proofs

Investment declarations collected at the start of the financial year are only estimates. Year-end TDS should be based on eligible and supported claims.

Set a clear deadline for submitting documents related to deductions, exemptions, and eligible expenses. Review the proof before applying the final tax benefit.

A missed deadline usually means payroll has to calculate TDS without considering an unsupported claim, which can increase deductions in the final months of the year.

Reconcile Year-to-Date Salary Components

Before March, compare payroll records with:

• Salary paid through bank transfers

• TDS deducted and deposited

• PF and ESI contributions

• Bonus and incentive payments

• Leave encashment and other taxable components

• Payroll-related provisions in the general ledger

The objective is simple: identify mismatches while there is still time to correct them in the final payroll cycle.

What Should Be Checked During the Final March Run?

The March payroll run is where the year’s tax and salary calculations finally come together.

Finalize TDS Calculations

Calculate taxable income based on actual salary, verified declarations, exemptions, deductions, perquisites, and any final adjustments.

If an employee submitted a valid investment proof late, the resulting tax correction may significantly change their final-month TDS. Payroll teams should explain major adjustments where possible because employees often notice only the change in take-home salary.

Process Bonuses, Perquisites, and Other Final Adjustments

Review any year-end bonus, incentive, arrear, perquisite, or other taxable payment that needs to be included in the final salary calculation.

This includes items such as employer-provided benefits and bonuses that may have been approved late in the year but still affect the relevant payroll period.

Complete Full and Final Settlements on Time

FY 2026-27 brings particular attention to the timing of employee exits. Where the applicable Labour Code provisions govern the payment, wage dues are subject to the prescribed two-working-day settlement timeline.

Any exit workflow still built around a 30 to 45-day settlement cycle needs to be reviewed against the applicable requirement. Manual calculation, manager approvals, leave adjustments, and asset recovery cannot be allowed to create unnecessary payroll delays.

Keka’s employee offboarding module can help bring exit calculations and workflow approvals into the same process.

Verify Statutory Contribution Deposits

Before closing the final run, confirm that contributions and deductions have actually been deposited.

A correctly calculated PF, ESI, or TDS amount can still trigger consequences if the payment itself is late. Year-end verification should therefore cover both the payroll calculation and the corresponding challan or deposit.

What Needs to Be Done After the Financial Year Ends?

The payroll year may close on 31 March, but reporting continues into the next financial year.

File Quarterly TDS Returns

The January to March TDS return is one of the most important post-year-end filings because employee tax certificates depend on accurate reporting.

For FY 2026-27, the payroll reporting framework transitions under the Income Tax Act, 2025. The salary TDS return moves to the applicable Form 138 framework for the relevant reporting cycle.

The return should be reconciled with payroll records before the employee tax certificates are generated.

Generate and Issue Form 16 to Employees

Under the existing framework, the employee salary tax certificate includes:

• Part A: TDS deducted and deposited

• Part B: Salary, exemptions, deductions, and tax calculations

For FY 2025-26, employers continue with the applicable Form 16 cycle.

For FY 2026-27, the transition to Form 130 applies to the relevant employee tax certificate framework under the Income Tax Act, 2025.

The certificate should only be generated after the corresponding TDS reporting has been accurately completed.

Reconcile PF and ESI Records

PF and ESI records should be reconciled against:

• Monthly payroll deductions

• Employer contributions

• Challan payments

• Employee-wise contribution records

For FY 2026-27, payroll teams should ensure that their filing and reporting process reflects the applicable statutory framework, including relevant EPF Scheme 2026 requirements.

The important control is consistency. The contribution recorded in payroll should match the contribution reported and deposited.

Complete Professional Tax Compliance

Professional Tax is a state-level obligation, and its requirements can vary based on where employees work.

Employers operating across multiple states may need to manage different:

• Registration requirements

• Return frequencies

• Forms

• Payment schedules

A payroll process that works for employees in one state may not automatically satisfy the requirements of another.

Which Forms are Required for Year-End Payroll in India?

The following forms and records commonly appear during the year-end process:

The key is to use the form and process applicable to the relevant reporting period.

During a transition year, payroll teams should be particularly careful about relying on outdated checklists or form names.

How Should Payroll Be Reconciled at Year-End?

Reconciliation is the control layer of year-end payroll.

It checks whether the numbers calculated in payroll match the amounts actually paid, deposited, reported, and recorded in the company’s accounts.

A mismatch should have a clear explanation before the financial year is closed.

For example, if payroll records ₹12 lakh in bonus expense while the general ledger shows ₹11.8 lakh, the ₹20,000 difference should be investigated.

It could be:

• A timing difference

• An accounting entry issue

• An unrecorded liability

• A payroll calculation error

The correction depends on the reason for the mismatch.

Note:

Keka’s payroll workflows can help surface payroll and statutory variances before they become a year-end reconciliation exercise.

How Should Businesses Set Up Payroll for the New Financial Year?

Closing the old year and preparing the new one should be part of the same workflow.

Update the Applicable Tax Configuration

Review the applicable:

• Income tax slabs

• Standard deduction

• Cess

• Surcharge

• Tax regime settings

Budget 2026 did not require a general reconfiguration of the income tax slabs, surcharge, cess, or standard deduction for FY 2026-27. However, payroll teams should still verify their configuration against the applicable rules before processing the first payroll cycle.

Review PF and ESI Wage Applicability

Review the statutory treatment of:

• New joiners

• Employees whose compensation has changed

• Employees approaching applicable wage thresholds

The applicable PF and ESI rules should be correctly reflected from the first payroll cycle of the new financial year.

Collect Fresh Investment Declarations

The investment declaration process starts again with the new financial year.

Employees declare the investments and deductions they expect to claim during the year so payroll can estimate TDS from the beginning. Collecting these declarations early reduces the March rush that happens when every tax adjustment is left for the final payroll cycle.

What are the Most Common Year-End Payroll Mistakes?

The biggest year-end payroll problems are often created by issues that appear small during the year.

An invalid PAN can affect the applicable TDS rate. Missing investment proof deadlines can force payroll to exclude unsupported claims from the final calculation. ESI treatment needs to follow the applicable contribution-period rules rather than being adjusted incorrectly based on a single month’s salary.

State-level Professional Tax can also create gaps for companies expanding into new locations.

The common thread is timing. Most of these problems become difficult to fix only because they are discovered too late.

How Does the Year-End Payroll Checklist Change by Business Size?

The basic compliance framework applies across businesses, but the operational risk changes as headcount grows.

Startups and Small Businesses (Under 20 Employees)

Businesses approaching statutory thresholds need to monitor when new obligations begin.

ESI and EPF employee thresholds are important triggers and the obligations can continue even if headcount later drops below the original registration threshold.

Small teams should therefore track applicability continuously instead of reviewing thresholds only at year-end.

Mid-Size Companies (20-200 Employees) and Large Enterprises (200+)

Larger businesses deal with additional complexity:

• Multi-state Professional Tax obligations

• Higher volumes of employee tax declarations

• Greater reconciliation requirements

• More formal audit and due-diligence expectations

What Penalties Apply When Year-End Payroll Deadlines are Missed?

A missed payroll deadline can result in different consequences depending on whether the failure involves calculation, deposit, filing, or certificate issuance.

TDS Late Filing and Deposit Penalties

Late TDS statements can attract a fee of ₹200 per day under Section 234E, subject to the applicable cap.

In specified cases, a separate penalty ranging from ₹10,000 to ₹1,00,000 may apply under Section 271H.

Delayed TDS deposits can also attract interest under the applicable provisions.

PF and ESI Default Consequences

Late statutory contribution payments can attract applicable interest and damages.

The important distinction is between calculating a contribution and depositing it. A payroll calculation is not the end of the compliance process.

Late Employee Tax Certificate Issuance

Delayed issuance of the applicable employee tax certificate can also attract penalties under the relevant tax provisions.

The practical approach is to track calculation, payment, filing, and certificate generation as separate tasks.

Completing one does not mean the others are complete.

How Should Section 80E and Other Deductions Be Handled at Year-End?

Not every employee deduction looks like a traditional investment.

Section 80E Education Loan Interest

Section 80E covers eligible interest paid on qualifying education loans.

The deduction applies to the interest component, subject to the applicable conditions and prescribed period. Employees should provide the relevant lender certificate or supporting documents during the investment-proof verification process.

Loans from friends or relatives do not automatically qualify simply because the money was used for education.

This is why year-end proof collection should cover more than the most common deductions.

Employees need a clear process for submitting all eligible supporting documents before final TDS is calculated.

How Can Payroll Software Help With Year-End Compliance?

Year-end payroll becomes harder when:

• Deadlines are tracked in one spreadsheet

• Employee data is stored somewhere else

• Tax calculations sit in another system

• Statutory payments are manually reconciled at month-end

Payroll software can bring these activities into a more structured workflow by helping teams:

• Automate payroll calculations

• Maintain employee records

• Track statutory deadlines

• Generate payroll and compliance reports

• Support reconciliation

• Maintain audit trails

For a deeper evaluation framework, see our guide on how to choose payroll software in India.

Closing the Year Right

Closing payroll for the financial year involves far more than processing the March salary.

The process starts with early preparation, moves through final TDS and statutory reconciliation, continues into post-year-end reporting, and finishes with setting up the next financial year correctly.

For FY 2026-27, payroll teams also need to keep the new Income Tax Act reporting framework and updated settlement requirements in view.

The four-phase checklist provides a practical sequence:

Prepare before March. Finalise and verify the March payroll. Complete post-year-end reporting. Configure the new financial year without carrying old errors into it.

If your team is still tracking payroll deadlines and reconciliations manually, a connected payroll system can reduce the amount of repeated work and improve visibility across compliance activities.

Keka helps businesses manage payroll calculations, statutory compliance, employee records, and reporting from the same platform.

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Frequently Asked Questions (FAQs)

Q1. What is year-end payroll?

1. Year-end payroll is the process of closing payroll for the financial year and reconciling salary payments, taxes, statutory deductions, and payroll records. It also includes post-year-end reporting, employee tax certificates, and preparing payroll for the next financial year.

Q2. When should year-end payroll activities happen?

1. Year-end payroll activities should ideally begin in January or February. PAN verification, investment proof collection, year-to-date reconciliation, and statutory checks should be completed before the final March payroll run.

Q3. What is the deadline for the Q4 TDS return?

1. The Q4 salary TDS return covering January to March is typically due by 31 May following the end of the financial year. Employers should ensure the return is accurately filed before generating the corresponding employee tax certificates.

Q4. When must employers issue the employee salary tax certificate?

1. The applicable employee salary tax certificate is generally issued by 15 June following the end of the financial year. For the FY 2026-27 reporting cycle, employers should follow the applicable Form 130 framework under the Income Tax Act, 2025.

Q5. How can payroll software simplify year-end payroll?

1. Payroll software can automate calculations, centralise employee data, track statutory deadlines, support compliance reporting, and reduce manual reconciliation. It is particularly useful at year-end because the same payroll data is required for tax reporting, statutory contributions, employee certificates, reconciliation, and new-year setup.