For salaried employees, the salary slip holds a great deal of vital information that can be useful in many ways. This simple document essentially contains a complete breakup of the salary you earn from your employer. Each month, you will receive the latest salary slip from the company you work in. Alternatively, you can also download your salary slip each month from the employee portal.
If you’re not sure how to decode the many line items contained in your salary slip, this guide can help.
Decoding Each Item in Salary Slips
Each pay slip contains two key kinds of information, namely the incomes you earn as a part of your salary and the deductions made therefrom. Check out these details below.
When you download your salary slip, you’ll find that the following incomes are typically included in the document.
As the name indicates, this is the most fundamental component of any salary structure. It is fixed by the employing company and makes up around 35% to 50% of the total salary. Basic pay is also important because it forms the basis for various other salary components. In terms of taxability, the basic pay is 100% taxable in the hands of the employee.
Dearness allowance is a benefit offered by employers to help employees meet the rising cost of living. Typically, government companies offer a dearness allowance to their employees. This allowance is calculated as a percentage of the basic pay (usually 30% to 40%). Like the basic pay, the dearness allowance is also entirely taxable.
House Rent Allowance
House Rent Allowance (HRA) is a kind of financial benefit offered as a part of the salary to help employees meet the cost of rental accommodation. This is also a taxable component of the salary.
However, if you actually live in rented premises, you can claim HRA exemption, which is the least of the following:
- Actual HRA received
- 50% of the salary if you live in a metro city
- 40% of the salary if you live in a non-metro city
- Annual rent paid minus 10% of your annual salary
The conveyance allowance is another kind of income that may be included in your salary slip. It is offered by the employer in order to help employees meet the cost of commuting from their home to their workplace. This allowance is also partially exempt from tax, up to ₹1,600 per month.
Leave Travel Allowance
Leave Travel Allowance or LTA is also found on the earnings side of the salary slip. It allows employees to meet the cost of travel when they are on leave from work. The LTA was originally introduced for central government employees and later, it was also extended to cover private sector employees.
Medical allowance is another component of salary income. As the name indicates, this allowance is granted to help employees meet the cost of medical expenses. This is different from medical reimbursement, where the employer reimburses the cost of your medical spends when you submit the actual bills.
The following three items are among the most common deductions that are included in the typical employee’s salary slip.
Professional tax is a deduction that is levied by state governments in India. As a result, the amount of professional tax deducted from your salary may vary depending on the state in which you are working. Furthermore, this deduction is only present in some states of India. Typically, the professional tax deducted from the salary comes up to a few hundred rupees each month.
Tax Deducted at Source (TDS)
Employers deduct tax at source from the salary income of employees whose total income exceeds the basic exemption limit. Typically, the tax is deducted as per the slab rate applicable. You can make use of various deductions under the Income Tax Act, 1961, to reduce the income tax rate applicable to you.
Contribution to the Employee Provident Fund (EPF)
Both the employer and the employee are expected to contribute to the latter’s EPF account. As an employee, you will find that your contribution to your EPF account will also feature on the deductions side of the salary slip.
Now that you know what each item in your salary slip means, you can understand your salary breakup better. In case you do not have a physical copy of the document, you can always download your salary slip from your company’s employee portal. Thereafter, you can proceed to decode each line item based on the details outlined above.
A thorough understanding of your salary can also help you negotiate your pay better when you are applying for a new job. Furthermore, it can also help you plan your finances and taxes better, since it offers more clarity on the taxable and non-taxable components of your pay.