Salary Slip

A Salary Slip or Payslip is  legal proof of income for an employee. Also, the salary slip acts as proof of employment. It also helps in filing income tax returns and applying for loans and mortgages and negotiating for a salary hike when applying for a new job. It is very important to understand salary slips and their components as it can help employees take advantage of the situations around them:

1. Choosing the Next Job Smartly: 

A salary slip assists in choosing jobs smartly from different companies while switching jobs. It also acts as a negotiating agent for salary hikes while changing new jobs.

2. Tax Planning:

Having knowledge of salary slips and their components can help an employee take advantage of the tax deductions available, hence allowing them to plan their taxes efficiently.

3. Better Understanding:

A salary slip has components which are forced savings like EPF and ESI. Employees do have an option to opt-out of some of these forced savings. They can instead invest the same in high yielding investments. 

Here are the major differences between the two:

Let’s understand the difference between cost to company and take-home salary with the following illustration. 

Suppose, Mr. X’s CTC is Rs. 5,50,000. Below is the break of his cost to the company:

• Basic Salary: Rs. 2,75,000 (50% of salary)
• DA: Rs. 82,500 (30% of basic)
• HRA: Rs. 1,43,000 (40% of basic + DA)
• CA: Rs.19,200 (Rs. 1,600 per month)
• Special Allowance: Rs. 8,700 (based on performance)
• EPF Contribution: Rs. 21,600

Gross Salary is the amount before deductions of taxes and others. However, it is inclusive of bonuses, overtime, etc. X’s gross salary is Rs. 5,50,000 – 21,600 i.e.

Gross Salary = Rs. 5,28,400. The net pay is calculated on this amount.

A salary slip or payslip will have basic information like company name, employee name, designation and employee code, etc. The components primarily fall under two categories: Income/Earnings and Deductions. Before reading the detailed of income part of the salary slip and the deductions adjusted, let us have a look at the sample salary slip:

Salary Slip Format in India

*The above format is just an illustrative example and your salary slip may include or exclude some of the components shown in the example.

It is to be noted that different companies follow different formats of salary slips. Following is a basic template for a salary slip that includes:

• Company name, logo and address, current month and year
• Employee Name, Employee Code, Designation, Department
• Employee PAN/Aadhaar, Bank Account Number 
• EPF Account Number, UAN (Universal Account Number)
• Total Work Days, Effective Work Days, Number of Leaves
• List of Earnings and Deductions
• Gross Pay and Net Pay

Income Part of Salary Slip

The components that form part of the Income/Earnings side of the salary statement are:

1. Basic Salary

Basic Salary is the amount that an employee receives prior to any extras being added or payments deducted. It excludes bonuses, overtime pay or any other compensation from an employer.

2. Dearness Allowance

Dearness Allowance (DA) is given by certain employers to their employees, compensating them for an increase in the cost of living. The purpose behind providing this allowance is to reduce the impact of rising inflation. It is generally paid in the form of a fixed percentage of basic salary. According to the Income Tax Act, the entire amount of DA received is taxable and has to be declared at the time of filing income tax returns. 

3. House Rent Allowance

HRA is an allowance that is paid by an employer to the employee as a part of the latter’s salary. This is basically given to individuals who live in rented houses with the intention of making it easier for them to afford a place of accommodation.

4. Conveyance Allowance

An amount of Rs. 1,600 per month  (Rs. 19,200 annually) is provided to the employees for commuting from home to office and vice-versa. Any expense over and above that is taxable.

5. Medical Allowance

This is an allowance provided by the employer when the employee or any of his family members fall sick for the cost incurred on their treatment. If the amount exceeds Rs. 15,000 per year, the same becomes taxable. 

6. Special Allowance

A special allowance is paid to an employee for the performance of a duty mentioned under section 14 (i). This allowance does not fall in the category of perquisite and is partially taxable. 

Deductions adjusted in Salary Slip

The components that form part of the Deductions side of the salary statement are:

1. Professional Tax

It is charged by the state government in order to let an individual practice a certain profession. The maximum amount payable per year is Rs. 2,500. It depends on your monthly salary and also on the state in which you work. The professional tax levied varies from state to state in India.

2. Tax Deducted at Source

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Usually, the person receiving income is liable to pay income tax.

3. Employee Provident Fund

PF is a scheme for providing a monetary benefit to all salaried individuals after their retirement. As you start working in a firm, both you and the organization contribute 12% of your basic remuneration into the EPF account.

A monthly payslip contains several components like House Rent Allowance (HRA), Dearness Allowance (DA), Medical Allowance, etc. that enables an employee to save income tax every financial year. The tax authorities enable organizations to structure the salaries of their employees in such a way that enables them to save tax via several allowances that are included in their income.

Also, every salary slip format contains a head known as Income Tax. This is the tax levied on the resulting amount after all the deductions, as per the employee’s tax slab. For example, if your monthly income is Rs. 50,000 after all the deductions, then the IT deductions will be levied on this figure. Taxes can further be saved by making investments in tax-saving instruments such as taking loans, policies, NPS, equities, and so on.

You will find several heads and subheads in the salary slip sample document. It is important for you to know which of these components are taxable and non-taxable. Given below is a table with all the taxability details about the components in your payslip format in excel/ word/ pdf.

What are the tax benefits that can be claimed on HRA?

The whole of HRA received by employees is not always fully tax-exempt. The actual tax exemption that can be claimed will be the least of the following three:

• The amount received as HRA from the employer
• Actual rent paid minus 10% of salary
• 50% of basic salary for those living in metro cities and 40% for those living in non-metro cities

What is an ESIC scheme?

If a company has 10 or more employees (20 in the case of Maharashtra and Chandigarh) whose gross salary is below Rs. 21,000 per month, then the employer is required to avail ESIC scheme for such employees. The employer’s contribution will be 4.75% of gross salary, whereas the employee’s contribution will be 1.75% of gross salary.

What is professional tax?

Professional tax is a tax levied on the income earned by salaried employees and professionals, including chartered accountants, doctors, and lawyers, etc. by the state government. Different states have varying methods of calculating professional tax. The maximum amount that is payable in a year is Rs. 2,500. Employers deduct professional tax, at prescribed rates, from the salary paid to employees, and pay it on their behalf to the State Government. The revenue collected is used towards the Employment Guarantee Scheme and the Employment Guarantee Fund.

How can I check my salary slip online?

The payslip is generally shared by the company HR or accounts team to employees over email.  Your salary slip is also available at the company HRMS portal. 

What is the salary slip format?

It contains a detailed description of the employee’s salary components like Company Name, Pay Slip Month, Name, Identification Number, Bank Account Number, Basic Salary, Gross Salary, Allowances, HRA, reimbursements, Provident Fund, TDS, Bonus paid etc. and deductions for a specified time period, usually a month.

Do banks check payslips?

Most lenders will ask for your two most recent, consecutive payslips that are no more than six weeks old. If your employment is complicated or you receive other income types such as overtime, bonuses, or commission then you may need to provide additional payslips, your tax return, or group certificates.

Are handwritten payslips legal?

There are already existing laws around payslips. These include that payslips must be delivered on or before the employee’s payday, although they can be provided to employees on paper (even handwritten) or electronically.

Do companies ask for payslips?

It is common for companies to request your prior salary information at each previous job. You are not required to prove it via a payslip (since any information you give must be truthful or you will have falsified your application for employment).

Why is salary slip important?

A salary slip or payslip is legal proof of income for an employee. It helps one understand their salary and the components of it. Also, the salary slip acts as proof of employment. It also helps in filing income tax returns and apply for loans and mortgages and negotiate for a salary hike when applying for a new job.