Know and Understand Your Salary Slip in 2022 - Sarkari Job Times: Education Blog 

Things You Should Know About Your Salary Slip

Do you ever think about what is written on a payslip or salary slip? The majority of the people throw the pay slip/salary slip in the dustbin as they think a salary slip is only required for those people who have to either apply for a loan or a credit card.

Probably, the sole factor that matters to them is the cash they earned along with how much money is deducted from their total salary.

But, it is necessary to understand the salary slips. Every company or organization has to give you salary slips, some companies even provide email salary slips in PDF format or a printed paper of salary slips to their employee so that their employees can download the salary slip anytime and anywhere.

A salary slip, popularly known as a payslip, is provided to all the employees of companies irrespective of large and small. While some employers generate the payslip on paper and others email it to their office staff. Again others get it through the post.

The details about your earnings are being carried by your salary slip for any specific period of time. Some people get their salary slip every month, while others get it every fortnight and many, every week depending on the company’s rule.

But, the majority of us dispose of a salary slip without providing it due importance. It is because we all want to know is the cash we made during a specific period and how much went to deduction of different types.

 

What is a Salary Slip or Pay Slip?

 

Salary Slip


In some countries, a salary slip is also called a payslip. Because a salary slip is provided to employees whose monthly allowances and remuneration are known.

Payslip salary is provided to workers whose income and allowances may differ as per the number of days or hours they work. Regardless, both slip indicates the earnings of an employee.

A salary slip also works as a vital legal document too. Apart from this, it’s legally binding upon your employer to give you a salary slip as a statement of your earnings and proof and also deductions if any.

You have to compulsorily endorse the salary slip or payslip to acknowledge that you have received the money it mentions.

 

Receiving a Salary Slip or Payslip

You have the legal right to ask your employer and get the original payslip or salary slip. You might be an employee for a small firm or private employer. But, you are always free to request your boss or employer for some form of a payslip.

Your employer may provide you a simple piece of paper mentioning your wages or salaries, the number of days worked in that firm, and deductions if any. Although this is more than enough, as it is stamped and signed by the employer.

On the other hand, you can receive your salary slip from the sources mentioned below:

Finance/Administration/Human Resources department of your employer.

Provider of Payroll service who manages wages and salaries for your employer on the basis of outsourcing.

Your bank may also provide your salary slip or payslip if your salary directly goes into the bank account. However, this shows only a salary transfer without sufficient detail.

 

What are the Benefits of Salary Slip?

  • Your salary slip is essential for a lot of reasons. So, it is important to get one every month. Furthermore, for future reference, you are also required to file your payslips very carefully.
  • Calculating your retirement savings: By using a salary slip you can find out the employee and employer contribution for PF in an exact manner.
  • Checking the Background: In background checks, salary slips are one of the most essential factors when you alter your job or go for higher education. Employers or the Admission team seek salary slips in order to validate your salary claims. In the case of changing your job, your hike depends on the structure and salary amount.
  • Understanding how much you pay income tax: Salary slip shows clearly your actual cash in hand and taxable income. These two factors are the most required pieces of information for us.
  • This helps to decide whether or not you will pay income tax and other additional taxes. Salary slip will help you to decide what amount of money you will pay as tax in every financial year. Apart from this, you would know how much income tax refunds you can claim from the government.
  • The payslip or salary slip also ensures access to some government services which are provided with heavy subsidies or totally free. This includes cheaper food grains from the public distribution system or state-run medical care facilities.
  • Getting loans from banks: Your salary slip plays a vital role in determining the loan repayment potential and hence determines your amount of loan. Again, housing mortgage, loans, bank credit, and other miscellaneous borrowings you can get is decided by your salary slip. Banks and other financial institutions or lending institutions will surely ask for copies of your salary slip at the time of applying for a loan or credit. Your creditworthiness and repayment capability is assessed by your payslips.
  • At the time of negotiating a salary with a new employer, a payslip plays an important role as a bargaining chip. Big organizations ask for copies of your latest salary slip as proof of your earnings. Actually, it helps them to decide how much money to pay you.
  • It is unfortunate to say that sometimes pay slips work against salary earners facing divorce proceedings. For the males, it might be used to calculate how much alimony to pay his wife. In the case of women, the amount of alimony and compensation claimed by them is based on the salary slips of their husbands.
  • In many Arabian Gulf countries, a salary slip determines whether or not you would get a liquor permit. In such countries, without a liquor permit, it is illegal to buy alcohol. If you do not earn a specific amount of salary, you will never get a liquor permit.

 

Salary Slip Format and Information

  • Reading a salary slip may be daunting for newcomers. Here are some primary indicators about some of the important information your salary slip will contain. The basic information may differ from the country of your employment and employer.

  • Number of your working hours/days
  • Number of days you absent at work
  • Official holidays (national days, festivals, and weekends)
  • Your Basic Salary
  • Residence and Housing Allowance
  • Transport/ Commute Allowance
  • Medical Allowance
  • Payment for overtime work
  • Extra pay for any reason
  • Dearness allowance
  • Social Security/ Provident Fund deductions
  • Workplace/ group accident cover deductions
  • Healthcare and medical insurance deductions
  • Advance payment/ adjustments on loans
  • Outstation Allowance
  • Tax deductions

 

Salary Slip Format

More info on your salary slip

In India, salary slip gains more significance because of the following reasons:

Payslip bears your full name/your legal identity.

In many cases, your complete residential address appears on the salary slip.

Your designation with the employer.

A number of employees in the company.

‘Rank’ and ‘Grade’ if any. The system of ‘Grade’ and ‘Rank’ is to indicate pay scale and seniority. Often, this system is used by government departments and offices, armed forces, etc.

Details about the total amount paid. Further, this will show the mode of payment- cheque, bank transfer, cash.

Manual and Computerized salary slips:

In some countries, there is a rule to affix a government revenue stamp to a salary slip/payslip. Apart from this, they bear the organization’s official signature and stamp of the issuing officer.

However, most companies issue e-salary slips or digital salary slips. You can print or store them for your future reference. Again, you can also get them endorsed by the employer.

Legal validity of digital and manual payslips:

Both salary slips have equal legal status. Note that you cannot tamper with your payslip. It is a criminal offense to temper, alters, or doctor a salary slip.

It may occur if you approach a labor court for the purpose of resolving a wage or salary dispute. However, such type of cases is very few because of bank transfer and computerization of salaries.

Foreign salary slips:

No matter, from which country your payslip comes from, it bears the same and equal legal status. To open an offshore banking account, salary slips from overseas countries can help you.

It also provides you the status of ‘Non-Resident’ in your native country. A ‘Non-Resident’ status is particularly useful to save taxes.

 

Why is Understanding Salary Slip Important?

As it is the legal proof of the earning and deductions, the salary slip is very important for the employees. Therefore if your company is not issuing a salary slip, it is your right to ask for the salary slip as per law. The amount of income tax that you have to pay completely depends on your income tax return amount and your salary slip, that you claim from the government. Apart from this, salary slip plays an important role in receiving government benefits such as subsidy and medical benefits, applying for a credit card, loans, mortgage of houses and lands, etc.

The salary slip contains a lot of information. We know that it is difficult to figure out the salary slip or payslip as an employee. Moreover, the salary slip format is different for different organizations or employers and also for different countries.

 

Cost to Company (CTC) vs. Gross Salary

Cost to Company means the aggregate amount of money that an employer will spend on an employee, in a financial year, whereas, gross salary is the total amount of money an employee takes as a salary, before calculating any deductions. Cost to Company includes salary, tax benefits, reimbursements, and contributions.

Apart from this, gross salary is the gross amount an employer or organization has committed to pay to their employee every month. The contributions to the gratuity and PF, among other things, are not included while calculating gross salary. The salary components such as dearness allowance, basic pay, city compensatory allowance, house rent allowance, and also other emoluments constitute part of the gross salary.

 

Components of Salary Slip

Let’s have a view at the common structure of the salary slips/payslips in India.

 

1. Basic Salary

Around 35 - 50% of the total salary constitutes the basic salary of the employee. Let’s take an example, if we assume the sample salary slip for Rs. 20,000 then the amount of basic salary of the employee would be around 8000 INR. The amount of basic salary is the most crucial part of your salary slip as the remaining function totally depends on it.

This component is lower for senior-level employees, and at the junior level, it would be higher.

Taxable: 100%

Part of in-hand: Yes

Why does it matter: If you get a very huge amount of basic salary, your taxable amount would be higher. Again, employee provident fund and house rent allowance are linked to the basic salary.

Though this is good to have a high basic salary, it’s that part of your salary, that your employer itself will be highly vigilant about. What’s the reason behind it? Almost all of your salary’s parts are calculated as a percentage of your basic pay. Therefore, employers themselves always try to keep the basic salary towards the lower side so that they do not need to pay high allowances.

 

2. Dearness Allowance (DA)

The cost of living adjustment allowance is known as the Dearness Allowance. Dearness Allowance is paid by the government to the employees and pensioners of the public sector.

A portion of the salary, Dearness Allowance is a fixed percentage of the basic salary received by an employee. It is aimed at providing coverage to the employees against the impact of inflation. Dearness Allowance (DA) is directly connected to the cost of living. It is different for different employees, based on their position and location.

Taxable: As per the Assessment Year 2019-20, Dearness Allowance is completely taxable for salaried employees.

Part of in-hand: Yes


3. Housing Rent Allowance (HRA)

The benefit of the housing rent allowance can be taken by the salaried employee and the employees who are living in a rented house. The housing rent allowance depends on the residing town or city of the employee. If the individual employee is a resident of the metro city, then the HRA would be equal to 50% of the basic salary. Otherwise, for the remaining cities, it would be 40% of the basic salary.

Taxable: As HRA is an allowance to the employees, up to a certain limit it is exempted from income tax, provided you pay rent. The exempted amount is calculated as the minimum of:

Annual payment of rent (-)10 percent of basic salary (+) Dearness Allowance (DA)

The actual amount of HRA received

50% of (dearness allowance + basic) in case the location is (Kolkata, Mumbai, Delhi, and Chennai) or 40% of (basic + dearness allowance) in case of other non-metropolitan cities.

Part of in-hand: Yes

Note: the exemption is allowed even if the employee owns a house, however, he cannot occupy it on account of his employment in another city.

 

4. Conveyance Allowance or Leave Travel Allowance (LTA)

This is the cost of traveling from home to work and vice versa. It’s the amount of money which the employee is provided by the employer to travel. Apart from this, the Conveyance allowance is fully exempted from the Income Tax and it is up to a certain limit.

Taxable: The amount exempted is calculated as the minimum of:

INR 1600/month

Amount of Conveyance component in your salary slip or payslip

Part of in-hand: Yes, it is depending on the amount you spend.

Why does it matter: It impacts the take-home pay amount of those at lower levels of pay strata.

 

5. Medical Allowance

During the employment period, if the employee met with an accident or any kind of injuries then the employee can claim for the medical allowance. However, the proof of all the expenses is required to submit by the employee only then the employer will pass the claimed amount. If an employee fails to provide the medical bills or necessary proof then he will receive the amount. However, the amount will be fully taxed. In the other case, the LTA allowance is exempted up to INR 15000.

Taxable: The Medical allowance you get might be any amount, however, it is only up to INR 15,000 is exempted from tax.

Part of in-hand: No.

A separate provision is also there for claiming the tax deductions when your medical insurance policy. This provision comes under Section 80D. It is a part of provision 80C.

 

6. Bonus Allowance

It is offered by the employer to its employee for his extraordinary performance. It is very essential to encourage the employee and motivate them as much as possible. Therefore, some amount is provided as a reward for the employees every year. This reward amount is 100% taxable.

Taxable: 100% taxable

Part of in-hand: Normally, yes.

 

7. Other Allowances

Depending on your organization, there are some additional tax saving allowances, which may assist you in claiming the income tax rebate. Some of them are not fully taxable while some have a cap.

Taxable: 100% taxable

Part of in-hand: It varies.

 

Deductions are Part of Salary Slip

1. Employee Provident Fund (EPF)

Apart from the allowances you get, there are some other parts or components which are included in your salary slip. These parts are fund amounts and they are deducted from your salary, for example, provident funds. This sum of money is collected from your salary. Usually, this is 12 % of the basic salary which you get after you attain retirement.

But, not the whole employer’s contribution amount moves into the EPF pocket. Out of their contribution amount, 8.33% will be moved into the Employees’ Pension Scheme, however, it is calculated on INR 15,000.

For each and every employee with basic pays more than or equal to Rs. 15,000, the diversion amount is Rs 1,250 per month goes into the EPS account. In any situation, if the employee’s basic pay is less than Rs. 15000, in that case, 8.33% of that total amount will move into the EPS account. The rest portion will be retained in the EPF scheme.

 

2. Professional Tax

A small deduction is levied by the state governments on every earning professionals. This deduction amount is known as professional tax. This tax is not limited to only salaried professionals, but also any individual who earns a living through any legit medium. The amount is usually Rs. 200, however, it is not common. The amount which is deducted from you as professional tax comes under the discretion of the state governments in India and as such, it varies for every state.

 

3. Income Tax

Tax-deductible at source: This is completely based on the total gross tax slab. It can be reduced under section 80C of the Income Tax Act by investing it into the tax-saving instrument.

 

How Do I Make a Payslip?

As an employer, you have to design your company’s pay slips in consultation with your HR, CA, or the accounting professionals in your organization. Additionally, you may have a look at the following samples of Salary Slip formats. Pick any one of them you think fit as per your requirement. They’re in Excel, Word, and PDF formats.

 

Download Salary Format In Word: CLICK HERE

Download Salary Format In PDF: CLICK HERE

 

OR

 

For your easy understanding, here is the most widely used format -

 

Your Company Name
( Sec No-58, Address-1, address-2, Guwahati-123456)

Pay Slip for April-2021

0399 YOUR NAME

Employee Number:

399

Function:

Account & Finance

Designation:

Account Executive

Location:

Guwahati

Bank Details:

078914584560879, State Bank, Guwahati

Date of Joining:

09-Sept-10

Earnings

Amount

Deductions

Amount

Basic

5500.00

P.F Employee Cont @ 12%

924.00

D.A

2200.00

ESI Employee Cont.

H.R.A

8500.00

Professional Tax

200.00

Canteen Allowances

3000.00

Staff Advance Salary

Conveyance Allowances

2500.00

Without Pay

Other Misc. Allowances

3300.00

Total Earnings

25000.00

Total Deductions

1124.00

Net Amount

23876.00

Amount (in words) :

for Your Company Name

 

Rupees Twenty Three Thousand Eight Hundred and Seventy-Six Only

Authorized Signatory

 

To increase your take-home salary use knowledge of salary slip.

 

Here Are Some Tips to Increase the Take-Home Salary:

  • The smartest way is to cut your basic pay and adjust the basic pay as long-term benefits or perks. A higher amount of basic means a higher DA, Provident Fund (PF), HRA contribution. Dearness Allowance (DA) is taxable and PF contribution decreases your take-home salary. But, your retirement plans will be negatively affected by reducing the PF.
  • The special allowance is fully taxable, hence remove it and adjust towards tax-free long-term benefits and perks.
  • Receive the maximum amount of benefit from the travel allowance, that is Rs.19,200/year
  • Receive the maximum amount of benefit from medical expenses allowance, that is Rs.15,000
  • Variable pay is 100% taxable. So, negotiate it to the minimum.

Hope you have figured everything about salary slips or payslips. Now, you can invest your money from your Income Tax redemption.

 

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