Understanding Your Salary Slip

Important Things to Know About Salary Slip

A salary pay slip is a document that every salaried individual receives from his or her employer, but not many are aware of its importance. Do common terms like gross salary, tax deductions, and reimbursements often leave you confused? Worry not! Here, we cover the crucial aspects related to a salary slip.

What is a salary slip?

It is a document that every company is liable to provide to its employees every month. The slip includes information regarding the employee’s deductions and basic salary for a given month. It works as proof of salary payment and is generally provided by employers as both soft and hard copies.

Components of a salary slip

A pay slip gives you a clear picture of how much salary you get in hand, what kind of allowances and incentives your employer offers, and various other details. Additionally, you can use the document to know the available tax deductions. Here is a list of the main components of a salary slip.

Income statements:

  • Basic salary
  • House Rent Allowance (HRA)
  • Dearness Allowance (DA); it is only for public sector employees
  • Medical Allowance (MA)
  • Conveyance Allowance (CA)
  • Special Allowance (SA)
  • In-hand salary
  • Cost to Company (CTC)

Deductions:

  • Professional tax
  • Employee Provident Fund (EPF); it is only for private sector employees
  • Tax Deducted at Source (TDS)

Difference between CTC and in-hand salary

CTC is the total amount the company spends on an employee. It includes HRA, CA, medical expenses, gratuity, EPF, and other allowances. It depends on a variety of factors, which affect your net salary. You can consider CTC as the employer’s total spending on hiring an employee.

The gross salary is the amount you get before deductions. The employer subtracts gratuity and PF from this income. The gross salary is not reflected in the pay slip. It is only mentioned in your offer letter. Finally, the amount you receive after the tax and other deductions is known as take-home or in-hand salary. The in-hand salary is always lower than the CTC, as you receive it after deduction. Let us understand the differences with illustrations.

Salary slip - Computation of income for public sector employees

If you are based in Delhi and your CTC is ₹94,100 per month, then the value of the pay slip component will be as follows:

Income Type

Amount

Deduction Type

Amount

Basic salary

₹40,000

Profession Tax

₹200

House Rent Allowance (HRA) of 50% of the basic salary for metro cities

₹20,000

Tax Deducted at Source (TDS)

₹10,000

House Rent Allowance (HRA) of 40% of the basic salary for non-metro cities

₹16,000

Employee Provident Fund (EPF) (12% of basic salary)

₹4,800

Conveyance Allowance (CA)

₹1,600

Total Deduction

₹15,000

Special Allowance (SA) (Varies based on the employee’s performance)

₹28,000



Medical Allowance

₹4,500



In-hand salary (CTC for employees living in metro-cities: ₹94,100 minus Total deduction: ₹15,000)

₹79,100



In-hand salary (CTC for employees living in non-metro-cities: ₹90,100 minus Total deduction: ₹15,000)

₹75,100




Salary slip structure in India

Here is a sample of a salary slip used in India.

Company Name

Salary Slip for April 2021

Name: Department:

Designation: Bank Account No:

Location:

Income

Deductions

Salary Head

Amount

Salary Head

Amount

Basic


Professional Tax


DA (Only for public sector employees)


TDS


HRA


EPF (Only for private sector employees)


CA




MA




SA




Gross Salary


Total Deduction



Reimbursements

CTC


Net Salary


Total Number of Days



Details about salary slip components

The income section of the pay slip includes components, like:

1.  Basic salary

It is the basic element of your salary, constituting up to 50% of your total pay. At the beginning of your career, this section includes a higher amount, but as you grow and reach a higher designation, the basic component becomes lower to ensure that it remains less than your total allowance. It is advisable to negotiate for a higher basic pay.

2. Dearness Allowance (DA)

DA is an allowance, which public sector employers pay to their employees to tackle the effects of inflation. As this amount is based on the cost of living, it may vary as per the location. DA is a specific percentage of your basic pay, and it is taxable.

3. House Rent Allowance (HRA)

The employee pay slip also includes HRA, which is the allowance employers pay to the employees who live in rented accommodation. If you are currently living in metro cities like Kolkata, Mumbai, Delhi, or Chennai, the HRA will be 50% of your basic pay. It is 40% for any other city.

4.  Conveyance Allowance (CA)

CA is the sum companies pay to employees to travel for work. Until 2018, you could get a yearly tax exemption of up to ₹19,200, but now it is not available anymore. Instead, you get a standard deduction of ₹50,000.

5.  Medical Allowance

Employers pay this allowance to every worker during their employment tenure to cover medical expenses. This also comes under the standard deduction.

6.  Leave Travel Allowance (LTA)

Employers pay this amount for the travel expenses of yourself and your family during holiday leave. It generally covers only the railway and flight costs for traveling within India. You need to submit the proof of travel to receive the LTA. You can also get a tax exemption on the amount, but for only up to two holidays in a four-year block.

7.  Special Allowance (SA)

SA is another allowance included in your monthly pay slip, and its value depends on your work performance. Companies introduced this allowance to motivate their employees to perform better. The amount varies among employers. The entire SA is taxable.

The deduction section of the salary slip includes:

1.  Professional tax

The governments of states like West Bengal, Karnataka, Andhra Pradesh, Maharashtra, Telangana, Tamil Nadu, Assam, Gujarat, Chhattisgarh, Meghalaya, Kerala, Jharkhand, Orissa, Tripura, Madhya Pradesh, and Bihar charge this tax on every earning professional. The tax amount is generally about ₹200 a month.

2.  Tax Deducted at Source (TDS)

Your employer deducts this tax from your income and submits it to the government. The amount depends on your income tax slab, and you can check it on the income tax e-filing portal.

3.  Employee Provident Fund (EPF)

Private sector employers may provide EPF as an investment avenue to their employees for savings and creating a retirement fund. As an employee, you need to contribute 12% of your basic pay. The employer contributes the same amount, too. Section 80C of the Income Tax Act, 1961 allows a yearly tax exemption of up to ₹1.5 lakh on your EPF contributions.

Why is the pay slip important?

The employee salary slip is a legal employment document, and it serves a variety of purposes, such as:

1. Employment certificate

It works as evidence of your employment. You need to submit its copy when applying for a travel visa. It is also required for any background check and as proof of salary claim.

2. Tax planning

The pay slip helps you with tax planning, which is an important part of your finances. With efficient tax planning, you can manage your tax outflow. Moreover, you can find out if you are eligible for any rebates or concessions according to the Income Tax Act, 1961.

3. Availing of loans and subsidies

The pay slip shows your current job designation and salary, both of which indicate your ability to repay a loan. So, lenders, as well as, credit card companies require you to furnish its copy to get a loan or credit card. You can also enjoy government subsidies on food grains, medical services, and other aids using this document.

Having understood the uses and importance of a pay slip, it is advisable to save its copies carefully for future requirements.

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