How to understand your Salary Slip


Share on: Whatsapp

What exactly is a payslip?

It is a document that every firm is required to deliver to its employees on a monthly basis. The slip contains information on the employee’s deductions and basic salary for the month. It serves as documentation of wage payment and is typically issued by companies in both soft and hard copy form.

A salary slip is normally broken into two sections: income and deductions. Each area is further subdivided into sections, which will vary depending on the type of company and industry. The following is an example of a standard salary slip template:-

INCOME

Basic Salary

This is a set component of your income that is typically between 40-60% of your CTC and serves as the foundation for HRA, EPF, Gratuity, and other benefits.

Allowance for House Rent (HRA)

House Rent Allowance is typically between 40 and 50 per cent of your standard wage. This has tax repercussions, and if you live in leased housing and get HRA, your tax exemption is the lowest among:

– HRA received

– 50% of basic pay for people residing in metropolitan areas (40 per cent of basic      salary for non-metros)

– Rent paid in full

Allowance for transportation/conveyance

When the employer does not give free transportation, this is paid. Most businesses keep this at Rs. 1,600 per month (Rs. 19,200 per year), as this is the highest tax deductible amount. You are not required to submit any bills.

Allowance for Education for Children

The actual amount paid varies by company, but up to Rs. 100 per month per kid, up to a maximum of two children, is tax-free.

Allowance for medical expenses

This allowance is usually established at Rs. 1,250 per month (Rs. 15,000 per year) – the maximum amount you may claim as reimbursement if you submit bills for medical expenditures incurred by yourself or dependents.

Allowance for Leave Travel (LTA)

This sum can be claimed as a tax deduction twice in a four-year period. The current period runs from 2018 to 21. You must produce receipts for any travel expenses spent by you or your dependents.

Bonus/Performance bonus

A sum paid based on your performance. This might be a fixed or variable sum paid every quarter, six months, or year. As salary, this is entirely taxed.

Exceptional Allowance

After all other sources of income have been deducted, this number is mostly a balancing figure. This is completely taxed.

DEDUCTIONS

Professional Tax

This is a state government tax that is withdrawn from your income and is due at Rs. 200 every month (Rs. 300 in February).

Contribution to the Provident Fund by Employees

The Provident Fund is a government programme that encourages people to save money. A company with 20 or more employees is necessary to join this plan (they can claim exemption too). Each month, you contribute 12% of your basic income, which is matched by your employer and placed into your provident fund account. Some employers may also choose to maintain this contribution at the bare minimum, i.e. 12 percent of a base salary of Rs. 15,000, or Rs. 1,800 per month, resulting in a larger take-home pay for employees.

The employee contribution is deductible as a business expense under Section 80C.

Income Tax/Tax Withheld At Source

This is the amount deducted for income tax payment. You must make a statement to your company’s accounts department at the start of the fiscal year, estimating your tax-saving investments for the year. Every month, your tax due is estimated and deducted based on this. Most employers want you to start producing proof of investments by January so that your tax burden may be reassessed if required, and the updated amount can be adjusted in salary payable from January to March.

Loans/Advances

If you have a loan or advance from the firm, the amount is deducted monthly and recorded here.

The wage slip is a very valuable document to have since it contains other information such as your date of joining, employee code, PAN, PF Account No, bank details, and leave balance that can be accessed quickly if needed. When applying for a loan or credit card, the wage slip is also routinely used as proof of income.

Leave a Reply

Your email address will not be published.