Payslips, also known as salary slips, are financial documents that prove your employer’s compensation, including your base salary, deductions, taxes, and unpaid allowances.
Employers are legally required to provide salary slips to their employees. It is not mandatory for employers to provide printed salary slips to their employees, but they are a legal requirement. For employees, a salary slip is a proof of income. Investing in tax-saving investments like equity funds, PPF, NPS, and life insurance can be made easier with the details of a salary slip.
How Does a Salary/Pay Slip Work?
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Salary slips are legal documents that employees receive from their employers every month. Salary slips provide an overview of your employee’s salary from gross salary to in-hand salary with deductions. Your employer provides your salary each month, which is then used to issue the pay slip.
How Does a Payroll Number Work?
Salary slips contain a payroll number, which helps the organization identify an employee both while paying the salary and afterwards when the employee leaves.
A payroll number is usually used only for administrative purposes, and employees are not subject to it. However, some employers may use the employee’s EPF (Employee Provident Fund) number or NPS (New Pension Scheme) number.
Salary Slip Format: What Is It?
In India, the salary slip does not follow a standard format. However, every salary slip must include certain information. These are the types of information that may appear on the salary slip depending on the type of company and compliance:
- Salary paid by month and year
- (b) Name, address, UIN/CIN, TAN, and PAN of the employer
- The employee’s name, code, designation, and department
- A PAN number and bank account number for each employee
- The EPF Account Number and the UAN (Universal Account Number)
- Work Days and Leaves
- Deductions and Earnings Classification
- Net Pay in Words and Numbers
- Balance of leave
Salary Slip Components: What Are They?
There are two principal components of a salary slip: Income and Deductions. I would like to discuss these two elements in more detail:
An overview of incomes
As part of your salary income, you usually receive the following components.
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Salary: Basic
Salary income is determined by your basic salary. It is the basis for all other salary components as well as deductions.
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Allowance for Dearness
It is an allowance intended to compensate against inflation. Dearness allowance is calculated as a percentage of basic salary and is fully taxable.
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3. Rent Allowance for Houses
An HRA is an allowance that reimburses you for your monthly house rent expenses. It is usually up to 50% of your basic salary. HRAs are partially taxable depending on where you live and the amount of your rent.
Here is a guide to calculating HRA benefits.
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Allowance for conveyance
You can receive this allowance tax-free up to the limit defined in the Union Budget each year to compensate you for your daily office commuting expenses.
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Indemnity for medical expenses
Medical allowances are fully taxable under Section 80D, and the maximum limit prescribed is Rs. 15,000 per year.
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Travel allowance for leave
Travel allowance is also a partially taxable benefit. It allows employees to visit their hometown twice in a four-year period.
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The Special Allowance
The special allowance is the rest of your salary that is fully taxable. It can be categorized into two categories – personal allowance and official allowance.
Read more,
- Tax Standard Deductions: How Do You Claim Them?
- 7 Reasons You Should Make Your Tax Return Online This Year
- House Registration Charges and Taxes
