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What is Salary Slip?

Know more about what is salary slip, salary slip format & components in your salary pay slip.

#Income-Tax
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What is a Salary Pay Slip?

An employee salary slip is a document which an employee receives from their employer every month. It indicates everything from the gross salary to the net take-home pay and deductions. After an employer provides your pay, the salary slip gets sent out each month. When people change their jobs, it becomes crucial to know their salary slip, so that they can secure a better salary after negotiation at the new workplace.

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What is a Payroll number?

The payroll number that is mentioned in a salary slip is the allocated unique identification number given to an employee by their employer. It helps in the identification of an individual during the process of providing Salary. The payroll number can be found on the salary pay slip. It is mostly used for administration purposes, and one does not need to pay much attention to it.

Salary Slip Format 

Following is an employee salary slip sample format:

Company/Organisation Details

Employee Payslip for the month of Month/Year

Employee Code

 

Location

 

Name

 

Bank Name

 

Department

 

Bank Account Number

 

Designation

 

Bank IFSC Code

 

Gender

 

PF Number

 

Date of Birth

 

PAN Number

 

 

 

UAN Number

 

Earnings

Amount (Rs.)

Deductions

Amount (Rs.)

Basic Salary

 

PF

 

HRA

 

Income Tax

 

Allowances (if any)

 

 

 

Total Earnings

 

Total Deductions

 

Net Pay

 

 

 

Note: The format stated above is just a representation of what salary slip format usually organisation follows. The salary slip format can vary from one organisation to another.

What Are the Components of a Salary Slip?

A salary slip usually indicates different fundamentals of your Salary, like basic Salary and allowances like dearness allowance, house rent allowance, conveyance allowance, special allowance, insurance allowance, leave travel allowance.

Every salary pay slip also mentions deductions like income tax, provident fund and professional tax. Broadly, there are three main things in any salary slip. They are earnings, perks/allowances, and deductions of different kinds, and these are all mentioned in your salary slip.

Check the salary slip components below:

1. Basic Salary as mentioned on the salary pay slip

The basic salary component in any salary pay slip is the total monthly take home. It is usually 30-50% of the total salary offered to an individual. However, there isn't any particular guideline on what percentage this component of a salary slip should be. Hence it differs. This element of a salary pay slip is vital because the other parts of your salary are calculated based on the basic salary.

For example, [1] let us assume that in an individual's new offer letter, the total cost to company (CTC) is Rs. 8 lakh rupees. In this case, the basic Salary could vary from Rs. 2.4 lakh to Rs. 4 lakh annually. This comes down to roughly Rs. 20,000 to Rs. 33,333, every month. It is recommended that one should always negotiate for a higher basic salary.

Additionally, the essential salary element of your salary pay slip is what is usually considered by banking institutions before they grant any kind of loans. 

Similarly, unless an individual has negotiated for a higher basic salary, any annual increment on the present Salary will usually result in a smaller take-home monthly salary. Hence, it is crucial to make sure that the basic Salary constitutes a minimum of 40% of your total CTC, if not more. This ensures a considerable accumulation of gratuity or any accrued benefits in the future. insurance plan.

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Additionally, the essential salary element of your salary pay slip is what is usually considered by banking institutions before they grant any kind of loans. 

Similarly, unless an individual has negotiated for a higher basic salary, any annual increment on the present Salary will usually result in a smaller take-home monthly salary. Hence, it is crucial to make sure that the basic Salary constitutes a minimum of 40% of your total CTC, if not more. This ensures a considerable accumulation of gratuity or any accrued benefits in the future. 

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2. House Rent Allowance as mentioned on the salary pay slip

The house rent allowance (HRA) component of a salary slip forms the second largest portion of the total Salary. The HRA is usually 40-50% of your basic Salary and is calculated based on the same (basic Salary).

This component is included in a salary slip for efficient tax structuring. In the example given above, if the basic salary per month is affixed at Rs. 20,000, then the HRA will be Rs. 10,000 (calculated at 50% of basic Salary).

Salary slip

Salary slip

3. Transport Allowance as mentioned on the salary pay slip

The transport allowance component of a salary slip denotes if and any stipend is given to cover up job-related travel expenditures.

4. Medical Reimbursement as mentioned on the salary pay slip

The medical allowance in an employee salary slip is a permanent amount that an employer pays its employees. This amount is entirely taxable when it is in employee's possession.

5. Special Allowance as mentioned on the salary pay slip

The special allowance component of a salary pay slip denotes the remaining portion of the total Salary and is entirely taxable. If a company offers any tax saving option like a free meal pass, it is advised that you choose them under this component of a salary slip. If any, the remainder of the balance amount, gets credited as a part of the total take-home salary.

6. Variable Component as mentioned on the salary pay slip

The variable component of an employee salary slip indicates any kind of incentive or bonus that is linked directly to performance. Typically, this constitutes 10-15% of the total CTC, therefore it reduces your fixed CTC element. This component of a salary slip is entirely taxable and gets either paid on a mid-year or annual basis. One can try and negotiate with the HR for a lower variable component, mainly because it gets paid only once or twice a year. In case an individual left the organization before the completion of a financial year, you don't receive the bonus.

Provident Fund as mentioned on the salary slip

This component of a salary pay slip denotes the contribution that an employer and the employee make towards the provident fund. As per the current law provisions, an employer must deduct 12% of the basic salary every month. Additionally, the employer is also supposed to make the same contribution and submit the same into the employee's provident fund account. 

The accumulations over the years gain interest every year at an announced rate as declared by the government. This component of a salary slip receives tax exemption. This component of a salary slip is extremely important as the provident fund  is supposed to be for post-

salary may slip Max Life Insurance

This component of a salary pay slip denotes the contribution that an employer and the employee make towards the provident fund. As per the current law provisions, an employer must deduct 12% of the basic salary every month. Additionally, the employer is also supposed to make the same contribution and submit the same into the employee's provident fund account. This component of a salary slip

The accumulations over the years gain interest every year at an announced rate as declared by the government. This component of a salary slip receives tax exemption.  This component of a salary slip is extremely important as the provident fund  is supposed to be for post-retirement expenses. Hence, it is a part of your investment portfolio and is also a tax saving instrument

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retirement expenses. Hence, it is a part of your investment portfolio and is also a tax saving instrument.

8. Professional Tax as mentioned on the salary pay slip

The professional tax component of a salary slip is a tax that is charged by the state government. It is charged by the state government to allow an individual to practice a specific profession in that particular state.  Under this component of a salary pay slip, the maximum amount payable is Rs. 2500 per year. In India, the professional tax, as mentioned in a salary slip varies from state to state.

9. Gratuity as mentioned on the salary pay slip

This component of the salary slip is a mandate for every company. The gratuity is a portion of the basic salary that is deducted by your employer. The deducted amount is contributed towards the gratuity fund. The eligibility of an employer to receive gratuity benefits depend on their tenure in the company. If an employee has completed five years of service, they can avail the gratuity.

10. Income Tax as mentioned on the salary pay slip

The income tax component of a salary pay slip is the calculated tax on the final amount after considering all deductions and exemptions, based on the tax slab an individual fall under. It is also the most complex component of the salary slip.

For example, if an individual's monthly Salary, after all, deductions, is Rs. 45,ooo. The income tax deductions will get based on this amount (Rs. 50,000).

One can also save taxes by showing their investments and tax saving portfolios like an insurance policy, provident fund and other loans (personal or home).

Hence, when an individual joins a new company and receives their first salary pay slip, they must do these three things:

  • Compare all the components of the salary slip with their employment agreement
  • Accurately calculate the number of days they have worked and the number of days that they have been paid for
  • Finally, tally all the tax deductions

Once an individual does this, they'd be able to master the art of reading their salary slip.

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Hence, when an individual joins a new company and receives their first salary pay slip, they must do these three things:

  • Compare all the components of the salary slip with their employment agreement
  • Accurately calculate the number of days they have worked and the number of days that they have been paid for
  • Finally, tally all the tax deductions

Once an individual does this, they'd be able to master the art of reading their salary slip.

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Explore Different Tax Saving Instruments

Now that the breakdown of a salary slip is understood, individuals must try and not take their salary slip and tax planning lightly. After all, it is their hard-earned money that gets deducted, an amount that they could have used for many other purposes. So, research the different tax saving options available before deciding anything.

Salary payslip

Salary payslip

One can use an online savings-investment calculator to compare the various tax saving instruments available and choose the best one. Insurance plans from Max Life Insurance helps not only safeguard one's financial future but enables them to achieve significant tax savings. So, invest in tax saving products if possible, it might be better than paying unnecessary taxes! Invest more to save more!

Sources:

[1] https://newsable.asianetnews.com/money/alok-bansal-of-policybazaar-tells-you-how-to-read-a-salary-slip

Disclaimer:

Save 46800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are:

  • Regular Individual
  • Fall under 30% income tax slab having taxable income less than Rs. 50 lakh
  • Opt for Old tax regime

ARN:- Sep/Bg/04E

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