Salary Slip Explained. Everything you need to know
Introduction
Every salaried employee of a company receives salary slips regularlyas legal requirement & proof of salary payments to employees and deductions made. Understanding the salary slip, helps individual in his financial planning. A salary slips will have basic information like company name, employee name, designation, and employee code, etc.
Earnings of an employee areBasic Salary, Dearness Allowance, House Rent Allowance, Conveyance Allowance, Medical Allowance, Special Allowance, etc.
Deduction components are like Professional tax, Tax Deducted at Source, Employee Provident Fund, or any employee loan payment, etc.
Basic Salary :
Basic Salary is the basic rate of work for the employee . It’s around 35-50% of the total salary amount. It forms the basis of other components of the salary. This basic salary is 100% taxable for the employee.
Dearness Allowance or DA :
Dearness Allowance or DA is paid to compensate the impact of inflation. This is usually 30-40% of the basic pay. Dearness allowancesisbased on the average cost of living. Hence it is different for different locations. For calculating income tax, basic with DA are combined as pay& 100 %taxable.
House Rent Allowance :
House Rent Allowance (HRA) is paid towards rented facilities and depend on the city of residence. For a metro cities, HRA would be 50% of the basic pay, and for other cities, it’s around 40%.As an allowance, it is exempted from income tax up to certain limit, ifnecessary,rent receipts submitted. The exemption is calculatedas minimum of following:
Rent paid annually minus ten percent of the pay (basic + DA) or Actual HRA received
Conveyance Allowance :
Conveyance Allowance is paid as allowance to travel to and from work. It’s also exempted from income tax up to certain limits. The exemption limit is the minimum INR 1600 per month or actual conveyance allowance received whatever minimum.
Medical Allowance
Employer paysMedical Allowance to employee for medical expenses yearly or monthly basis. Upon submission of expenses receipts, employee can get tax exemption up to 15,000 INR.
Leave Travel Allowance
Leave travel allowance or LTA is the allowance to cover travel expenses for employee and his immediate family members for any vacation. This is amount is also exempted from income tax upon submission of travel tickets. No other expenses during vacation travel are exempted. This exemption is only applicable for total two journeys in a block of 4 calendar years.
Special Allowance :
Special allowances or performance-based allowance are dependent on the performance of employee and complete organisation.This is given to encourage employees to perform better. This allowance is 100% taxable.
Tax deducted at Source (TDS) :
Tax deducted at Source or TDS is amount deducted by employer for yearly tax estimations for yearly earnings. Tax deducted by an employer is credited to government and appeared in Form 16 and form 26AS statement.
Professional Tax :
Professional tax is a state-specific taxon the income earned by salaried employees and professionals & paid to the state government. So it may varies with state.
Provident fund (PF) :
Provident fund is the compulsory saving scheme enforced by the government ( approx. 12% of Basic salary) as part contribution from employee side and equal portion from employer side is deposited monthly basis to government. This amount gets interest benefits from government side.
Employee loan EMI deduction –
In case of any loan availed by employee from the employer under loan scheme, then EMI will be deducted from salary.
Conclusion
Salary slip is the important document for every working professional and must be understood for good financial planning. Saving of income tax on the income, deductions by the employer must be known to every employee.
Legalway is India’s largest online tax services provider, helping employees with filing income tax and other compliance returns since 2013.
