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What is a Salary Slip? Basic Understanding, Importance & Other Aspects

Updated: Jan 11


What is a Salary Slip? Understand the Importance of Salary Slip

Have you ever scratched your head while understanding your own ‘Salary Slip’? I am sure you definitely would have. The components of salary slip are known to all but are difficult to comprehend. To understand how each month's net salary is calculated, you must deep dive in each component of your salary slip. In this article, we will decode a salary slip and understand each of its components.


 

Table of Content

 

What is a Salary Slip?

A salary slip primarily contains employer information, employee’s basic information, work-related details, earnings and deductions. Every salaried employee receives a salary slip from the employer after the receipt of monthly salary. It is simply a payment summary of salary paid by the employer and the basis of such payment. Salary slip can be used by an employee as a measure to evaluate the earnings over the course of employment.


Format of a Salary Slip

There is no standard format for a salary slip. It is customized to reflect the information that each company wants to present to its employees. However, a general salary slip includes the following details:

  • The company's name, address, logo, PAN, and GST number, as well as the salary month.

  • Employee data such as name, employee code, date of joining, PAN, bank details, department, and designation.

  • Employee salary computation details such as number of days worked, number of days absent, gross earnings, deductions, and net earnings.

  • The net amount payable to the employee is stated in numbers and in words.

  • If the salary slip is physically presented to the employee, the signatures of the authorized signatory of the company and the employee must be included.

  • If the salary slip is presented in a digital form to the employee, it will be signed digitally by the authorized signatory of the company.

The general format of a salary slip is presented below:

salary slip format

Components of a Salary Slip

Apart from giving the basic details of the employer, a salary slip comprises the information of the employee like date of joining, department/head, number of working days, arrears of salary, advance from salary, all earnings, and all the eligible deductions.


The main components of a salary slip are: Gross earnings, deductions, and net earnings. These are explained below in detail:


Gross Earnings

The gross earnings is a sum of all the incomes earned by the employee for a particular month. It consists of the basic salary and various allowances. Each type of gross earnings is explained as under:


  • Basic Salary: The basic salary is the base of other components of the employee’s total earnings. It is a fixed pay between a range of 30-50% of the total salary. The balance percentage of gross earnings, that is, the percentage remaining after the basic salary is represented by allowances.


  • Dearness Allowance (DA): The Dearness Allowance (DA) is a payment made to employees to compensate them for inflationary losses in their earnings. The government and public sector employers pay the DA to their employees. It is not applicable to the private employees. DA generally ranges from 40-45% of the basic salary. The range of DA varies according to the location of employment.


  • House Rent Allowance (HRA): The House Rent Allowance (HRA) is a compensation paid to employees for the pay The House Rent Allowance (HRA) is the benefit given to the employees residing in a rented apartment during the course of employment. HRA is computed at a certain percentage of Basic Salary. If the employee resides in a metro city on rent, the HRA would be 50% of the basic salary. For non-metro city types, the HRA would be 40% of the basic salary. An employee can save tax to an extent upon receiving HRA, that is, it is not fully taxable always. The employee can claim an exemption in HRA to the extent of the least of the following:

  • Amount of HRA received from the employer

  • Actual rent paid less 10% of salary (Basic + DA)

  • 50% of Basic + DA for metro cities or 40% of Basic + DA for non-metro cities.

Metro cities include Mumbai, Kolkata, Chennai, and Delhi.


  • Conveyance and Medical Allowance: The conveyance allowance is paid as compensation for the cost of travel to and fro of employees during the course of employment. The medical allowance received by the employee is compensation to recover the medical expenses incurred. Since the Budget 2019–2020 provides a standard deduction of INR 50,000 from salary, there is no separate deduction for conveyance and medical allowances.


  • Leave Travel Allowance (LTA): The Leave Travel Allowance (LTA) is the benefit given to the employees when employees travel during leave with their immediate family members. Only domestic travel within India is eligible for LTA. In addition, the LTA exemption can be claimed twice in a four-year period. Individuals who choose the new tax regime will not be eligible for LTA exemption.


  • Bonus and Special Allowance: Most often companies reward their employees for the outstanding performance by paying a performance bonus or special allowance. These are fully taxable. The bonus and special allowance form the variable component of the salary and it is different for different companies. An employer usually establishes a predetermined rate of bonus or special allowance that is calculated on the employee's basic salary.


  • Other Allowances: The other allowances are paid at the discretion of the employer for the well-being of the employee or for the leisure of the employee. These allowances are fully taxable. Examples of other allowances include: coupon for purchasing grocery or food.


Deductions

The general deductions from the gross salary include PF, PT, and TDS. Each type of deductions are explained as under:


  • Provident Fund (PF): Both the employee and the employer are required to contribute an equal amount to the Provident Fund (PF) over the course of employment. Normally, both make a PF contribution of 12% each of the employee's basic salary. The employee is entitled to deduct his PF contribution from his gross total income.


  • Professional Tax (PT): Certain States in India mandate the deduction of Profession Tax (PT) by the employer while paying the salary to the employees. Each State has its own regulation for collecting PT from the employers. The employee can claim the benefit of the amount deducted towards PT from his salary.


  • Tax Deducted at Source (TDS): The tax is deducted at source from the employee’s salary by the employer on behalf of the government based on the slab rates applicable to the individual employee. The employer calculates TDS based on the information provided by employees about their sources of income and proof of investments.


Net Earnings

The net amount to be paid to an employee after all deductions from gross earnings is referred to as net earnings. It is simply the employee's salary that will be credited to his bank account each month by the company.


Importance of Salary Slip

A salary slip is an extremely important document for an employee. It serves as proof of earnings for employees. The following are the benefits of a salary slip:


  • Acts as a proof: Employees will be able to prove their employment status if they have a genuine salary slip. Moreover, they will be able to borrow money and apply for foreign visas and universities using the salary slip as a proof.


  • Helps in tax planning: The salary slip of employees enables the tax professionals or employee himself to make tax planning in advance. Since, the salary slip comprises all the incomes and deductions. This will enable the employees to gain maximum tax advantage.


Difference between Cost to Company (CTC) and Gross Salary

Cost to Company (CTC) is the sum of all the costs and benefits that a company is willing to spend on an employee. The costs mainly include the net salary or the take-home salary. The benefits mainly comprise of the company's contribution towards provident fund, allowances such as conveyance, house rent allowance (HRA), leave travel allowance (LTA), medical allowance, and so on.


Gross Salary of an employee on the other hand, is the sum of all the components of earnings and allowances before considering any deductions of taxes (TDS), professional tax (PT), and provident fund (PF).


FAQ

Q1. A salary slip is to be in a printed/physical form only?

A salary slip may or may not be in a printed/physical form. Nowadays, a pre-installed Human Resource Management System (HRMS) provides a salary slip online which is digitally signed by the employer.


Q2. From where an employee can access or obtain his salary slip?

If an employer issues the salary slip to an employee in a digital form, the employee can access the same from the employee portal using his credentials. Often, it is directly mailed to the employee by the Human Resource (HR) department. However, if the company issues a salary slip in a physical form, an employee should obtain the same from the HR department of the company each month.


Q3. Should an employee safe-keep the salary slips?

Employees should always keep their salary slips safe, whether they are digital or printed. Since a salary slip serves as the basis for various benefits that an employee may claim. For example: a salary slip is required by the bank when applying for a loan or applying for visas or for admission in foreign universities.


Q4. What should be the retention period of a salary slip by an employee?

If an employee wills to opt for change in employment, a past three-months salary slips will be required by the prospective employer. Thus, a minimum of three months’ salary slips should be retained. If an employee wants to make a loan application to the bank, a six months salary slip would be required as evidence. Thus, the period of retention varies from requirement to requirements. To be on a safer side, an employee must retain a salary slip of at least a year or so. 


Q5. The net payment as shown on the salary slip and the amount credited to the employee's bank account should be the same?

Yes. The net payment as shown on the salary slip and the amount credited to the employee's bank account should always match. If there is any discrepancy, the same should be examined further.


Q6. Under which category, does the standard deduction of INR 50,000 is presented in the salary slip of an employee?

Uptill the Financial Year (F.Y.) 2022-2023, the standard deduction of INR 50,000 is allowed to all salaried employees who follow the old tax regime of taxation. However, it is not reflected in the salary slip of an employee. Rather it is included in the Form 16 while computing the annual tax liability of an employee at the end of the financial year.

Note: From the F.Y. 2023-2024, the standard deduction of INR 50,000 is allowed to all salaried individuals, irrespective of the tax regimes followed by them.


Q7. What is the difference between the cost to company (CTC), gross salary, and the in-hand salary?

Cost to Company (CTC) is the cost that the company is willing to bear while hiring an employee. Gross salary is the sum of basic salary and the allowances before considering the deductions. The in-hand salary is the take-home salary which an employee will receive after subtracting all the deductions from the gross salary.


Q8. Can an employee edit or prepare his own salary slip?

A salary slip is always issued by the employer to the employee. An employee should never prepare or edit the salary slip on his own. To prevent this, employers issue a digitally signed non-editable salary slip now-a-days. Still, if a salary slip is issued in physical form, the signature of the employee is obtained at the time of issuance of salary slip.







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