Salary Slips

• House Rent AllowanceA salary slip, also called a payslip, is a document issued by employers to their employees. This contains the following details:

• Employees’ income

• Deductions for the month

• Applicable leaves

• Bonus

• Leave Travel Allowance and much more

 

The employees may receive a printed version or a soft copy via mail in PDF format. Employers are legally obliged to provide salary slips to their employees at regular intervals, which serve as evidence of salary payments and deductions.

Read on to know more about salary slips, their components and their importance.

Typically, the components in salary slips contain three different kinds of information.

• General information

• Income details

• Details about deductions

 

The general information refers to the company name, the employee’s name, designation, employee code, company address, etc. 

Here is a closer look at the other two components in detail.

 

A. Income

The income components include all parts of your salary, either as monetary or non-monetary allowances. It consists of the basic salary and various other allowances, as outlined below.  

 

1. Basic Salary

 

This is the most crucial component of your salary, which typically does not vary from one month to the next. Generally, the basic salary makes up around 35% to 40% of the total salary, depending on the employer’s terms. 

 

The basic salary sets the foundation for calculating various other elements of the payslip, and it is 100% taxable as per the Income Tax Act.

 

2. Dearness Allowance (DA)

 

This allowance is paid to minimise the rising impact of inflation. This is approximately 30% to 40% of your basic salary, and it is also 100% taxable as per the Income Tax Act, 1961. Note that this component only applies to government and public sector employees. 

 

Private sector employees are not eligible for a Dearness Allowance. 

 

3. House Rent Allowance (HRA)

 

 The House Rent Allowance (HRA) is 40-50% of the basic salary. Employers pay this allowance to cover the cost of rental accommodation. Since HRA is not fully exempt from taxation, here are the criteria for tax-claim:

• The actual House Rent Allowance (HRA) received

• Rent minus 10% of the (basic pay + DA)

• 50% of the (basic pay + DA) if you live in a metro city or 40% of the (basic pay + DA) if you live in a non-metro city 

 

4. Conveyance Allowance

 

The conveyance or travel allowance is a part of the salary that you get to meet the costs of commuting to and from work. This allowance, which also appears on the earnings or incomes section of your payslip, is partially exempt from tax. 

 

The minimum of the following amounts is tax free:

• ₹1,600 per month or ₹19,200 annually

• Actual conveyance allowance received

 

5. Medical Allowance

 

As the name indicates, medical allowance is paid by the employer to help an employee meet the costs of any medical treatment and related expenses. 

 

It is the amount fixed by the company, and employees can get refunds for treatment and medications during the course of employment by submitting the bills. If the amount surpasses ₹15,000 annually, it becomes subject to taxation.

 

6. Leave Travel Allowance (LTA)

 

Leave Travel Allowance (LTA) is paid by employers to employees to cover the cost of any travel undertaken when the employee is on leave. The allowance is only partially exempt from tax, and to claim deductions, you need to submit proof of the journey. 

 

Remember that the exemption is only available for two journeys undertaken within a block of 4 years, as notified by the Indian government.

 

7. Special or Performance Allowance

 

This is typically a performance-based allowance paid by employers to employees for motivating and encouraging employees. The terms and conditions for paying a special allowance vary from one employer to another. Irrespective of the amount, this allowance is 100% taxable income. 

B. Deductions

The third main component in salary slips is the set of deductions typically made from the salary. Here is a closer look at the common deductions you may find in your salary slips. 

 

1. Professional Tax

 

Professional tax is levied by the governments of some states like Andhra Pradesh, West Bengal, Tamil Nadu, Maharashtra, Kerala, and Orissa, among others. The maximum amount of professional tax a state can levy per financial year is ₹2,500. 

 

This amount is reduced from the taxable income and is listed on the deduction side of the salary slip.

 

2. Employee Provident Fund (EPF)

 

This is a mandatory deduction that is made each month to meet the requirements of EPF account contributions. Typically, 12% of the basic salary is deducted as the employee’s contribution under Section 80C of the Income Tax Act, 1961. 

 

Note that the employer also contributes an equal sum to the EPF or retirement fund.

 

3. Tax Deducted at Source (TDS)

 

TDS is also an important entry on the deductions side of salary slips. It is that portion of income tax that gets deducted at the source from what you get. 

 

If your annual salary exceeds the basic exemption limit applicable, your employer will deduct tax at source. The TDS amount is based on the income tax slab applicable to you.

The standard deduction was first introduced in Budget 2018 as a replacement for two specific allowances — transport allowance and medical reimbursement. Initially, the standard deduction was set at ₹40,000, and all salaried employees could claim this sum as a deduction from their total income. 

 

Thereafter, in the Interim Budget 2019, the amount of standard deduction was increased to ₹50,000. In the 2020 budget, the Indian government introduced a new tax regime under which the standard deduction was initially not allowed. 

However, in a welcome move, the Indian government recently announced in the 2023 budget the standard deduction of ₹50,000. These new rates would be applicable to taxpayers choosing the new tax regime as well.

As the name suggests, salary slips are only available to salaried employees. The responsibility for providing a payslip to the employee rests with the employer. They can either choose to hand over the monthly salary slip as a hard copy or make the same available on a dedicated salary slip portal. 

 

In case, for some reason, you are not provided with a monthly payslip, you can also request a salary certificate that will list out the month-wise employee payslip details.

Although there is no standard format for salary slips, there is a template that most organisations generally tend to follow. 

 

Here is a quick look at a few of the items that you can typically find in a payslip, irrespective of the organisation. 

• Name, logo, and registered address of the company 

• Month and year pertaining to the salary slip

• Employee’s name, ID/code, department, designation, PAN, Aadhaar, and bank details

• Employee’s Universal Account Number (UAN) and EPF account number 

• Employee’s total working days, effective working days and leaves availed 

• A detailed list of all of the income-related salary components and deductions from salary

• Gross salary and the net salary of the employee, in numbers and words

In a digital era, most employers have chosen to use technology to provide e-payslips to their employees. Electronic payslips, commonly known as e-payslips, encompass important information related to your salary in an online format. 

 

They offer numerous benefits to both employees and businesses. It reduces the manual work for the HR team, and employees find it convenient to access and download the salary slips instantly. It is a valid document which is used for proof of income when applying for credit or other financial products.

As an employee of an organisation, you need to know the difference between in-hand salary, gross salary, and Cost to Company (CTC). This will help you plan your finances in a much better manner. 

 

Cost to Company (CTC) is the total amount that your employer spends on you, including basic salary, allowances, salary deductions, employer’s contribution towards EPF or NPS account, and premiums paid towards health or life insurance. 

 

As you can see, not all the components under a CTC would be payable to you directly. Your gross salary is the amount you receive before any deductions. In simple terms, it is the amount your employer pays you every month, excluding PF and gratuity. 

 

After deductions, you get the net pay, which is your actual salary. To understand this better, consider a hypothetical example. Assuming your CTC is ₹5,50,000, here is the breakdown of your salary:

• Basic salary: ₹2,75,000

• Dearness Allowance (DA): ₹82,500

• House Rent Allowance (HRA): ₹1,43,000

• Conveyance Allowance: ₹19,200

• Performance Allowance: ₹8,700

• EPF: ₹21,600

 

After calculations, the in-hand salary that you will get after the EPF deduction is ₹5,28,400. 

With your payslip, you can quickly find out the amount of taxable income that you have earned during a financial year. The components listed in an employee salary slip can be categorised into three types based on their taxability: fully exempt, partially taxable, and fully taxable.

 

Here is a quick look at the components and how they are taxed.

With this information, you can not only quickly calculate the amount of tax that you would have to pay but also determine the amount of tax that you get to save as well.