Salary Slips

What is a Salary Slip?

A Salary slip or a Payslip is the document issued by the employers to their employees in which the employee's income and deductions for the month are broken down in great detail. The employees may receive a printed copy of this document or receive a copy via mail. It is also downloadable in the PDF formats. 

In addition, as evidence of the payments of salary to its employees and the deductions that have been made, a business is required by law to issue salary slips on a regular basis.

What are the Components of a Salary Slip?

Typically, the components in a salary slip contain three different kinds of information, namely general information, details about incomes and details about deductions. Let’s take a closer look at these three key components and what they include.

1. General Information

This component includes information pertaining to the company name, the employee’s name, designation, employee code, company address and other such basic details. 

2. Incomes

The income components include all the parts of your salary that you earn either as monetary or non-monetary allowances. More specifically, it consists of the basic salary and various other allowances, as outlined below. 

• Basic Salary: This is the basic component of your salary. It is fixed and does not vary from one month to the next. Generally, the basic salary makes up around 35% to 50% of the total salary, depending on the employer’s policies. It is also 100% taxable in the employee’s hands. 

• Dearness Allowance (DA): The Dearness Allowance or DA is an allowance that government employees are eligible for. Employers pay this allowance to make it easier for employees to meet the rising costs of living over time. The DA is also 100% taxable as per the Income Tax Act.

• House Rent Allowance (HRA): The House Rent Allowance (HRA) is also an allowance that is included in the income component of the salary slip. Employers pay this allowance to make it easier for employees to meet the cost of rental accommodation. The HRA is partially exempt from tax, to the extent of the least of the following:

1. The actual House Rent Allowance (HRA) received

2. Rent minus 10% the (basic pay + DA)

3. 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 

• Conveyance Allowance: The conveyance allowance is a part of the salary that employers pay employees in order to meet the costs of travelling or 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. ₹1,600 per month

2. Actual conveyance allowance received

• Medical Allowance: As the name indicates, the medical allowance is paid by the employer to the employee to help the latter meet the costs of any medical treatment or other such expenses that may crop up during the course of employment. The medical allowance is fully taxable.

• 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 partially exempt from tax, and such exemption is only available for two journeys undertaken within a block of 4 years, as notified by the Indian government.

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

3. Deductions

The third main component in a payslip 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 slip. 

• Professional Tax: This 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.

• Employee Provident Fund (EPF): This is a mandatory deduction that is made each month to meet the requirements of contributing to your EPF account. Typically, 12% of the basic salary is deducted as the employee’s contribution to EPF. The employer also contributes an equal sum.

• Tax Deducted at Source (TDS): TDS is also an important entry on the deductions side of a salary slip. It is that portion of income tax that is deducted at source from the salary paid. If your annual salary exceeds the basic exemption limit applicable, your employer will deduct tax at source. 

Impact of Standard Deduction on Salary Slip

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 the 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 that the standard deduction of ₹50,000 would be applicable for taxpayers choosing the new tax regime as well. 

Who Gets a Salary Slip?

As the name suggests, a salary slip is only available to salaried employees. The responsibility for providing the salary pay slip 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. If for some reason you are not provided with a monthly salary pay slip, you can also request a salary certificate that will list out the month-wise employee pay slip details.

Format of a Salary Slip

Although there’s no set format for a salary payslip, there is a template that most organisations generally tend to follow. Here’s 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 details such as their name, employee ID/code, department, and designation

• PAN, Aadhaar, and bank account details of the employee 

• Universal Account Number (UAN) and EPF account number of the employee  

• Total number of working days in the month, the number of days actually worked, and the number of leaves availed by the employee

• Detailed list of all of the income related salary components and deductions from salary

• Gross salary and the net salary of the employee 

What are E-Payslips?

We are in a digital era with large multi geographic conglomerates and global organisations.  Most employers have chosen to make use of technology to provide e-payslips to their employees. This is an entirely online process wherein all the relevant information is available electronically. Thus reducing manual effort for the HR team while also simplifying it for employees to view/download salary slips online by logging into the organisation’s salary slip portal. The epayslips are completely valid and can be used as proof wherever needed, in case of seeking a loan or a credit card or any similar financial requirement. 

Importance of a Salary Slip

If you study the pay slip format, you will find that there are many components listed on it. These components not only clarify your individual income statement for the month/year, but there are several other areas where they come in handy. Listed below are some of the uses of a salary slip.

• Maximise Income Tax Savings

Thorough knowledge of the salary slip components such as basic pay, house rent allowance, tax deductions, etc., can help you with your tax planning thereby maximising savings. For example, under Section 10 of the Income Tax Act, 1961, if you live in rented accommodation, you can claim a part of the House Rent Allowance (HRA) under tax deduction. 

Also, under Section 80C of the same Act, you can enjoy tax savings against EPF (Employees’ Provident Fund) contribution, which makes up to 12 percent of your basic salary.

• Resolve Discrepancies in Salary Payment

Online systems can also be prone to technical errors. If you see a change (increase/ decrease) in your monthly salary amount, you can quickly refer to your online salary slip and raise the concern to the relevant HR or Finance departments. 

• Proof of Employment

Your payslip is legal proof of your employment status. If you are looking to get a loan, open a bank account, apply for a visa, etc., you would need to submit copies of your salary slips for the last three months as proof of your last drawn salary.

• Avail Loans

In case you wish to apply for a loan, an important criterion that you need to fulfil is your financial eligibility to repay the loan. Your salary slip provides proof of your monthly income and is accepted as an official proof of your employment. It is accepted by almost all the banks and financial institutions as a proof of your financial eligibility and increases your chances of getting the loan approved.

• Apply for a Credit Card

You need the monthly salary payment slip even when you apply for a credit card. This is irrespective of the card you have opted for. Be it an RBL Bank credit card, Axis Bank credit card, SBI credit card, ICICI Credit Card, or YES Bank credit card. The salary slip is mandatory if you are a salaried individual. The document serves as proof of your regularised income and backs your eligibility for the selected credit card.

• Job Change

When you are looking to seek employment in a different organisation, you would need to provide your salary slip to the employer to initiate salary negotiations. This is because your new salary (and the increment thereupon) is decided based on your current salary.

Difference Between Cost to Company (CTC) and In-hand or Gross Salary 

As an employee of an organisation, it is important for you 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) includes all the direct and indirect benefits that an organisation provides you with. It includes things like basic salary, all allowances, all salary deductions, employer’s contribution towards your EPF or NPS account, and premiums paid towards health or life insurance coverage. As you can see, not all the components under a CTC would be payable to you directly.  

Gross salary, on the other hand, only includes basic salary, all allowances, all salary deductions, and employee’s contribution towards EPF or NPS. 

And finally, in-hand salary is the amount that you receive in-hand each month after accounting for all the deductions. It only includes the basic salary component and all other cash allowances payable to you. In-hand salary is also referred to as net salary. 

How Can You Estimate Your Tax Savings Using a Salary Slip?

With your pay slip, you can quickly find out the amount of taxable income that you’ve 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, fully taxable. Here’s a quick look at the components and how they’re 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.