What Is Salary Slip? Importance, Format, Components & Deduction

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What is Salary Slip?

We feel entirely the joy of receiving the first salary after working hard in a company. Many new employees feel difficulty in understanding a salary slip. A salary slip is a payslip that is received by the employee from his employer. It is a systematic structure that contains financial statements of an employee’s salary. This slip includes details like HRA, LTA, bonus paid, and deduction. After the end of the month, the employers must release a salary slip to their employees. Now you don’t need to go to the accountant section of your company to avail of a salary slip. Companies email you e-slip every month.

Who Gets a Salary Slip?

A company is legally bound to release salary slips to its employees. Only full-time workers get a salary slip from the company. No independent, self-employed, and part-time worker receives an e payslip. When an employee selects for a specific designation and works for a month, get a payslip. In case, if an employee gives a resignation, the first will not receive a salary slip. A salary slip carries all financial details about earnings for any particular time period. Some employees get a salary slip in a month, every fortnight, and weekly.

Why is understanding salary slip important?

It is essential to understand e payslip. Because at the time of sanctioning a loan and advances you will get confused. There are so many things you will have in your salary slip like basic salary, medical allowance, travel allowance, house rate allowance, taxed, deduction, bonus, and so forth. A payslip allows employees to take advantage of various free facilities and subsidiaries. You will get an idea of how much tax you are paying, and how much refund you will get at the end of the year. One of the significant reasons to understand payslip is setting up the financial goal. It’s your legal right to avail payslip even if you can get the payslip online. When you check the salary slip format every month, you will know whether or not you are paying tax.

Salary Slip Format in India

A payslip is divided into two broad categories- income/ reimbursements/ perks and deduction whereas each category is further divided into categories that vary from company to company.

Every month your company offers you a payslip once the salary comes in your account. Below we have mentioned the payslip important.

A salary slip format includes the following items:

  • Company name, logo and address, month and year
  • Employee Name, ID, Designation & Department
  • Employee PAN, Aadhaar Number, Bank Account Number
  • EPF Account Number, UAN (Universal Account Number)
  • Working Days, Number of Leaves, Leave Without pay if any
  • List of Earnings and Deductions
  • Gross Pay and Net Pay in numbers as well as words

Salary Slip Sample:

Format of Salary Slip or Payslip

Importance of salary slip:

A base for income tax returns

The salary slip format gives you a clear about the tax you are paying and the return you will get. This financial statement contains earning and deduction. The tax that deducts from your basic salary will come in your salary slip. And it will help fix how much money you pay as taxes every year.

Provides access to various facilities

The salary slip format allows you to take the benefits of the basic facilities and amenities like medical insurance, subsidized food grains, and so forth.

To get the Loan

When you get payslip every month, you can raise the request for the loan. A lender will offer you a loan at the best interest rates. If your CTC is high, you can take over 20 lac loan against your e payslip if your CTC is good enough.

Employment Proof

At the time of switching, or getting a loan, every company asks you to submit a proof of employment. An e payslip is the only financial document that helps you in proving you are a full-time employer.

Divorce Settlement

In the event, if you want to give a divorce to your spouse, you have to show proof of your income, and that will be proven by submitting a salary slip.

Tax Implications

Every employee of the company has to submit the declaration about the estimated tax savings investments to the company’s accountant. Based on this, tax liability deducts and calculates every month. Many companies request their employees to submit proof of tax savings investments.

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Components of Salary Slip

A salary slip has two significant components: earnings and deduction. The earring is a basic salary, bonus, and other allowance an employee gets from his company. The deduction is a component that deducts from an employee’s salary—a few major components of the earning and deduction.

Basic Salary

It is one of the essential components of a payslip that typically ranges between 40%-60% of your total salary. It is a fixed component of your payslip. Whereas, bonus and deduction varies according to the performance of the employee.

House Rent Allowance (HRA)

A house rent allowance normally lies between 40-50% of your basic salary. It’s an allowance to pay an employee house rent. If you are living on rent, then you will get this allowance from your company. The actual amount of HRA depends on the location where you live. Companies don’t allot more than 50% HRA of the basic pay to the employees. A significant benefit of HRA is you can claim a part of HRA as a tax deduction under section 10 D.

Dearness Allowance

The dearness allowance that every employee will get to offset the impact of inflation. It is taxable, and while filing ITR it must be on the paper. It’s only available for government employees.

Transport/ Allowance:

Most companies don’t provide free transport facilities to its employees. So they deduct some traveling costs from the salary. If you go to the company via its transport facility, then you have to pay some traveling costs. In a salary slip, you will see the transport cost as well.

Performance Allowance/Bonus

These allowances vary according to the performance of the employees. You will get a bonus, a special hike if you achieve 100% company’s satisfaction. It’s a type of perk and encourages you to keep the workup.

Other Allowance

This comprises various allowance a lot for the employees, like travel allowance, medical allowance, meal allowance, interim allowance, and so forth. It completely depends on the company’s terms and conditions. Generally, most of the MNC companies will offer these allowances to their valuable employees. Whatever allowances, you will get shows on the salary slip format.

Medical Allowance

Many reputed and leading companies offer health insurance to their employees. They will pay the premiums for their employee’s health insurance policy. The medical allowance is Rs. 1,250 per month, and you will get the claim against the medical expenses when you submit the bill.

Cost to Company (CTC) Vs in-Hand Gross Salary

Before joining any company you should understand financial terms like CTC, BAsic Salary, in-Hand Salary in detail. The cost to a company defined as a total income cost that a company spends directly or indirectly on the employees. An employer discusses this amount during the hiring process as a total salary package. Many freshers generally have a misconception that CTC and in-hand salary are the same. A CTC inclusive of components like basic pay, allowances, reimbursements, and so forth. Whereas in-hand salary is only a basic pay that you can see in the salary slip format.

Keep mind the CTC and the home salary will not be the same. A CTC contains various components that you cannot get in your home salary.

CTC = Gross salary + PF + Gratuity.

Gross Salary: A gross salary is an amount containing basic pay and allowance, before deduction.

PF: Provident fund is an investment that an employee has to do every month. The sum assured of the PF will get to an employee at the end of the retirement period.

Gratuity: A gratuity is a payable amount that an employee receives for his/her services towards the company.

So, the employer has to spend CTC on an employee during the hiring and sustaining them in the organization.

In-Hand salary:

In hand salary is a take-home salary, is the income that employee gets every month after tax and other deductions. According to the relevant company policy, the employer deducts amounts in the form of TDS, PF, professional taxes, and so forth. After deducting all types of taxes, the amount is given to an employee every month is in-hand salary.

Net Salary = Gross salary – Income tax- Provident funds- Professional tax.

We can also say that A net salary = Direct benefits- Deduction. 

Understand the difference between the CTC/ net salary with this example-

Mr. Joe salary example- 

Mr. Joe’s salary lies between 2,50,001- 5,00,000 range under the 10% tax slab.

10% of His income stands at Rs. 3,60,074.

Now, after income tax deduction and other professional deduction, he would receive Rs. 3,24,006.6

All the earnings and deduction components you will see in your e payslip.

Deduction Part of Salary Slip

A salary slip is noted with an earning and deduction part. Many freshers feel difficulty in understanding a deduction section. The following are the deduction components in an effective explanation.

Professional Tax

A professional tax is levied by the state government, paid to the statement to the state government from an employee for the welfare of the country. It’s a mandatory tax, and every employee has to release it. According to the finance budget 2019-2020, employees whose CTC is below 5 Lac, don’t need to submit professional tax.

Tax-deductible at source (TDS)

According to the income tax act, the company can deduct some amount from its employee’s salary on behalf of income tax. It’s a company’s responsibility to deduct TDS before releasing the monthly salary. Employees can save their TDS by investing in mutual funds and other schemes.

Employee Provident Fund Contribution

Provident fund is a compulsory retirement savings plan. Under section 80C company transfers 12% of your basic salary in the EPF account under the provident fund scheme. At the end of the retirement period, you will get the sum assured of the scheme. EPF contribution is exempted from the tax. A provident fund is a type of investment that gives benefits to both employer and employee.

Loans and Advances

In the event, if you take the loan against your salary, then every month, a fixed EMI will be deducted from your account. A payslip is quite a useful asset at the time of sanctioning a loan. Because it gives surety to the lender that you are financially stable and can repay the loan on time.

Standard Deduction

According to a financial budget, 2018-2019, Rs. 40,000 will be deducted from an employee income as a medical and travel allowance reimbursement. The finance minister Arun Jaitley had introduced a standard deduction of Rs. 40,000 in the finance budget 2018-2019. This standard deduction is replaced by the travel allowances Rs. 1920 and medical allowances Rs. 15,000 every year. This standard deduction deducts from the gross salary and claim as an exemption. Employees don’t need to show any proof to claim this deduction. As a result, due to this, the effective standard deduction is an income exemption of Rs. 5,800 (40,000- (15000+19,200)

Also Read: Benefits of financial planningPradhan Mantri Gramin Awaas Yojana 

Final Say:

We hope this comprehensive guide on a salary slip helps you a lot. Every employee has a clear understanding of the salary slip format. Because it helps them in calculating taxes and how much amount they are receiving as a hand income.

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