Mostly all the salaried people get a salary slip, but they understand the importance of salary slip when they apply in a new company, for a loan, or taking a credit card. Salary slips are provided every month and it acts as proof of income. It is also called a payslip and provided to every employee of organizations small or large. A lot of people do not know what value it holds and dispose of it off as they know what their monthly salary is and what the deductions are. Still, there are many advantages that it provides and it holds great value.
What is a Salary Slip/Pay Slip?
It is a document that comprises a precise list of the varied components of your salary and the details of the employee. An employer issues it to the employee. It includes elements like HRA, basic salary, bonus paid, PPF paid, LTA and other such details. It is provided to employees whose monthly salary is known and is either issued on paper or sent through an email. It is an essential legal document; thus, employers are bound to provide salary slips to their employees, because it acts as a proof of salary paid and deductions done. You should also ensure that the logo of the company, along with name and address, should be there on the salary slip.
Who gets a Salary Slip?
It is every employee’s legal right to ask for a salary slip and get the original payslip. It is provided to only salaried people, and the employer gives it every month. There may be a few small companies that might not provide the salary slip; in that case, you can request for a Salary Certificate. Some employer provides you with a simple document mentioning your salary; days worked and deductions. It can work for you as long as the name of the company is mentioned and is duly signed and stamped by your employer.
Importance of Salary Slip
Pay Slip is an important document and you might need it for multiple reasons and ensure that you make a proper record of it and do not misplace them. Let us understand its role in detail-
It is a vital legal proof of employment. Salary slip decides the amount of tax that you need to pay; also it tells you how much income tax return you need to file from the government. You would require payslip for getting a loan, bank credit or mortgage as it gives them proof that you would pay the borrowed amount. Pay Slips show your creditworthiness and repayment capability. It also acts as evidence for availing various subsidies or services that are free from government, such as medical care, cheap grains, etc. It helps you to negotiate with the new employer to get a higher wage. Big companies would always ask for the salary slip of previous companies as it helps them decide your new salary. Well, it is also needed in courts when people apply for a divorce as it helps them determine the alimony. There are some of the countries that require a salary slip to decide whether you should get the liquor license or not as in few Arabian Gulf countries; it is a mandate to have a liquor license for buying liquor. If you do not amount the specified salary, you would not be able to purchase alcohol.
After reading the importance of the salary slip, it must have made you felt how valuable it is to keep it safe. Now, let us take some knowledge of the salary slip components and their format. Also Read: What is Average Salary in India? (2020)
Salary Slip Format
The various components that it comprises if are-
1) Incomes/Earning
All the gains or the income is placed on the left side of your salary slip. The elements which are included in the income part of your salary slip are- a) Basic Salary: This is one of the most salient features of your salary slip as it contains around 35%-40% of your salary. This is the chief component, which also determines the other aspects of your salary. It adds to your in-hand salary and it is 100% taxable. b) Dearness Allowance: This is paid to lessen the impact of inflation on the employees. It is calculated based on your basic salary. DA is also 100% taxable and should be included by filing your ITR. This allowance is usually seen in the salary slip of government employees. c)House Rent Allowance: It is generally referred to as HRA and is given to the employees for paying their house rent. HRA is provided to you depending on the location (metro or non-metro) and its share is between 40%-50% of your basic salary. The tax exemption is given on whichever of the below is less:
40% of your basic pay HRA component specified on your salary slip Actual rent minus 10% of basic
HRA also adds to your in-hand salary. d) Conveyance Allowance: This allowance is provided by the companies to cover the cost of travel from home to work and vice versa. You do not have to pay any tax on this allowance. This income is also added to your in-hand salary but it also depends on how much amount you actually spend on traveling. e) Leave Travel Allowance: Not all companies provide leave travel allowance; it is given to employees to cover the cost of travel while they are on leave. It is also given to their immediate family members when they travel along with the employee. For tax exemption, the employee needs to show the evidence, other expenses apart from travel do not come under LTA tax exemption. Also, you get the exemption for 2 journeys taken in 4 calendar years. f) Medical Allowance: This allowance is given to employees to cater to their medical expenses while they are in employment. This is usually a reimbursed expense once you provide proof of expenditures. The tax exemption is on the medical expenses of Rs.15, 000 per annum. In case you do not provide the proof, you would get the whole amount paid, but it would be fully taxable. g) Performance Bonus and Special Allowance: These are given to employees to motivate them to give a better performance but it is entirely taxable. It varies with performance and company policies as it is different for every company and sometimes even departments. h) Other Allowances: In this section, all the other allowances are added, which a company might provide to their employees. Employers might opt for putting any extra compensation under this category. Usually, these allowances are taxable and they might or might not add to your salary based on the conditions.
2) Deductions
This is the amount that is deducted from your pay in different ways. The deductions include: a) Employee Provident Fund (EPF): Other than income, there are other components too that are added to your payslip and deducted from your salary, such as a provident fund. It is subtracted from your salary and is usually 12% of the basic wage and diverted to an EPF account, which you get after retirement. It is a mandatory contribution by the employee towards the PF account in his name, with some exceptions. The employer’s account contributes not all the amount to the EPF amount; instead, 8.33% is given to the Employees Pension Scheme. b) Professional Tax: This tax is for all the employees, such as salaried people, professionals or traders who have an income. The state government levies this tax, the amount is usually Rs.200, but it might vary for some states. This tax is calculated depending on the person’s tax slab and is applicable in a few states of India. c)Tax Deductible at Source: It is totally based upon the total gross tax slab that can be lessened under section 80C by investing it into a tax saving instrument and submitting the required documents to your employer. In simple language, TDS is the tax deducted by your employer on behalf of the Income Tax department. Also Read: Instant Payday Loans Within 24 Hours In India
Why is understanding a Pay Slip useful?
The first thing is that as it is a proof of income, which tells you every component of your salary and its deductions, thus, it provides you a fair idea on how much tax you need to pay and how it can be saved by making an investment. In fact, the income tax return amount as well is calculated from your salary slip. Also, it is beneficial while applying for any loan, credit, mortgage and receiving any subsidy As per the law, it is the right of an employee to request a salary slip, in case if your company does not issue it. There is a confusion that majorly people have in their mind, which is that they do not know the difference between Cost to the company (CTC) and in-hand /gross salary, let us know the difference in brief.
CTC vs. Gross Salary
Cost to the company is the amount that the employer spends on an employee in a year; on the other hand; gross salary is the amount that the employee gets as a salary before any deductions. Gross salary does not include the contribution towards PF and gratuity. Employer’s contributions are never added to the gross salary. CTC consists of the basic salary, dearness allowances, HRA, reimbursements, tax benefits, and grants.
Impact of Standard Deductions on Pay Slip
A standard deduction was removed for many years and then was reintroduced in the year 2018-2019 in the Union Budget by the Finance Minister than Arun Jaitley. An amount of Rs.50, 000 can be claimed as a standard deduction by salaried employees, which lessens the tax impact to salaried people and pensioners. This component has replaced the transport and medical reimbursements components in salary slip.
Points to keep in mind while comparing slip in offers
Things to check in the salary slip
There are quite a few things that you should ensure that your salary slip includes as without those elements your salary slip but not act as legal proof of income. Listed below are some of the important checks that you should do:
Hard Copy or Soft Copy of the Salary Slip
Well, annual salary slips were provided by the companies a couple of years back but now most of the companies provide the salary slip through an email. There may be some companies that still provide the hard copy as they serve two purposes, one as an original salary slip and second is receipt of payment. There are numerous countries in which a government stamp is necessary on the salary slip along with the company’s stamp and issuer’s signature. Nowadays, most companies offer e-salary slip, which is safe in your mailbox. You can also take a print out and store it as well for future reference. Do not worry whichever payslips you get; both are legal. Also, you would be glad to know that irrespective of which country you work in; it would have the same legal status. If you have a salary slip from abroad, then it can benefit you as you would be able to open an offshore banking account. Wrapping Up After reading this article, you must have got an insight into everything you need to know about a salary slip. Another advantage of understanding a salary slip is that it also helps to increase your take-home salary as you know that variable pay is taxable so you can negotiate it to the minimum. Also Read: 12 Best Virtual Credit Cards In India (VCC) Thus, there are plentiful benefits of salary slip, so from now on, keep it safe for future reference and try to reduce the tax by making the best investments.
