Decoding Salary Slip & Sample Formats
The monthly salary is credited into your bank account is always less than what you signed up for in the employment offer letter. This is so because of the structure of your salary and the tax implications on it, although it’s not the easiest financial document to decipher, it is not the rocket science either. Here’s a simple guide to decoding salary slip & sample formats.
So, what does salary slip has?
Salary slip tells your take-home salary and the deductions from the total salary in a particular month. Do not directly correlate monthly income shown in this slip with the cost to the company or CTC figure. Furthermore, your cost to the company includes some variable components as well, like bonuses which may appear in your salary, only once or twice in a year depending on how it is disbursed by your organization.
Your salary will have information like, your employee Id, date of joining, the number of days worked in this month, the bank details where salaries credited, pan number, provident fund, account number, leave details in this month and other information
A regular salary slip has two major components, earnings, and deductions.
In earnings, let’s first discuss basic salary. As the name suggests, this forms the very basis of the salary. This is the core of salary and many other components would be calculated based on this amount like PF, HRA, gratuity, etc. Moreover, the basic salary usually depends on once grade within the company salary structure. It is a fixed part of one’s compensation structure and is the biggest part of your pay. Typically 50 to 60% of your cost to the company. The basic tends to form a higher portion of salary at junior levels at senior levels that portion of basic goes down a little bit and variable components such as target linked bonuses come into the picture.
Next, are allowances. It is the amount received by an individual paid by his or her employer in addition to salary to meet some service requirements. Allowances can be fully taxable, partly Or nontaxable. Let’s discuss the important ones here.
Dearness allowance is the separate allowance paid to employees. This amount is calculated as a percentage of basic salary to mitigate the effect of inflation. This amount is 100% taxable.
Medical Allowance is what your employer pays you for any medical expenses during the period of employment. This amount is usually a reimbursed expense and you would need to provide sufficient proof of expenses such as medical bills and doctors prescriptions. The amount of medical allowance may vary from company to company, but up to 15,000 per annum is exempted from taxes, provided you furnish proof of such expenses.
Over time allowance
Over time allowance paid for extra time, you worked for the company during national holidays, etc. It is also fully taxable.
House Rent Allowance Or HRA
The allowance is for expenses related to rented accommodation. Salaried individuals who live in a rented house apartment can claim housing allowance to lower taxes. This can be partially or completely exempt from taxes.
Conveyance allowance is given to employees to meet travel expenses from residence to work. This allowance for up to rupees 19,200 per annum is exempt from the tax. This was doubled only two years back.
Leave travel allowance or LTA
Salaried employees can avail exemption for a trip within India under leave travel allowance. The exemption is only for the shortest distance on a trip. As a result, this allowance can only be claimed for a trip taken with your spouse, children, and parents, but not with your other relatives.
Performance bonus, this is paid that is linked to performance, often evaluated on the basis of predetermined targets and other metrics. This comes to you as a lump sum at a certain time of the year. Moreover, it is also a hundred percent taxable.
Special allowance, whatever the balance left to be paid to employ after the above allowances and gets paid under this annoyance. This allowance also hundred percent taxable. There are many other allowances such as lunch allowance, telephone allowance, etc, which are all fully taxable.
Now, let move to deductions in the salary slip.
The provident fund is the mandated deduction of 12% of your basic every month. Your employer makes a matching contribution. This matching contribution is not mentioned in the salary slip. The accumulations earn interest at a rate announced every quarter by EPFO. For those contributions gets tax exemption. Under section 80TC, you may increase your own contribution of 100% of your basic, but there is no compulsion on the employer to increase their contribution beyond 12% of your basic.
Professional tax is a state tax applicable in certain states. This tax is in the range of few hundred rupees and depends upon a certain minimum threshold. You cannot lower this tax.
This is the most important income tax. At the start off the financial year, your employer asked for a declaration of savings. You will do in the current year and calculate the tentative tax based on the income tax lab for that financial year. Accordingly, your employer deducts TDS on your salary every month. Based on that calculation, your salary slip shows that amount. This component can change based on your salary change, Tax slab change or change in tax saving in investment. Hence, the net pay that will be credited to your account will be total earnings minus total deduction.
Finally, a few important points about decoding salary slip & sample formats.
- Your basic salary is the most important salary component, as many allowances and pf deduction is based on this.
- You can reduce the income tax component by investing money in tax saving instruments and taking benefits of tax exemptions on various allowances.
- Your take home salary and CTC is not the same. Moreover, your CTC is higher than take-home salary, as CTC amount includes multiple other benefits like free food, transport, health insurance, bonus, etc.
- Salary slip is important to document. It is recommended to preserve a copy of past six months salary slips. It can be asked for applying for a visa, credit card, etc.
Here are two sample format for the salary:
Salary Slip in MS Word Doc format