People are not much aware of the importance, format, and components of a pay slip. If we ask them randomly about it, they seem to have a rough idea about payslips. Almost 9 out of 10 do not pay enough attention to their pay slips.
If someone surprisingly puts a few questions to his/her close friends about their exact pay. Surely, Nine times out of ten will think for hold for a minute and provide you a rough number which is credited into their bank account as their salary. Getting a basic understanding of pay slips will help you to manage your money. So let's get into understanding the pay slips.
A salary slip is a document that consists of a detailed list of the different components of your salary along with specific features of employment/job/work. A salary slip is issued every month by an employer either in the form of a printed hard copy or an electronic copy. A salary slip is known as a pay slip too.
Components of payslip
Generally, a salary slip depicts the different components of your salary such as basic salary, allowances (dearness allowance, house rent allowance, conveyance allowance, special allowance, medical allowance, leave travel allowance), and deductions like income tax, provident fund, and professional tax. Considerably, a pay slip shows three major factors such as earnings, perks/allowances, and deductions.
Basic: This is a basic component of a pay slip. It is the basic component of your salary that constitutes 40-50% of your gross pay. At senior levels, it will be less and additionally added elements such as performance-based pay or target-linked pay will be major components. As much as there is a concern about income tax then the basic pay is significant due to its taxability. Additionally, basic pay shows the (HRA) house rent allowance and (PF) provident fund.
Dearness allowance: It is an allowance that needs to be declared while filing income tax returns. Dearness allowance is paid to top up your basics in accordance with the prevalent inflation rates. This component will be 30-40% of your basic. As much as there is concern about income tax, then pay means basic and dearness allowance are combined together.
House rent allowance (HRA): It is mandatory to provide a certain sum of money to employees under the HRA subhead. This component constitutes 10-35% of your basics and varies with your designation and role in your organization. As this is an allowance, it is exempt from income tax up to a specific limit, provided you are actually paying house rent and furnishing the lease document or rental receipts.
Conveyance allowance: This allowance is given to cover all the incurred travel expenses related to work. Rs. 1600 is the exemption limit from income tax for every month. Individuals are required to pay the attention to this component as this helps for making the more tax-efficient and affects the take-home pay of those at lower levels of pay.
Income tax: According to the laws, your employer deducts a certain amount of sum from your salary which is known as TDS or tax deducted at the source. According to your tax slab category, the employer will deduct this amount. To be more tax efficient, it is better to provide supporting and relevant documents correlated to tax-saving investments and items such as payment of premiums for life, health, and other items.
Provident Fund: An employer is required to deduct 12% of your basics every month according to the predominant provisions of the law. Provident Fund also makes a matching contribution and pays the same into your provident fund account. The accumulated sum of money earns interest at a rate declared every year. A Provident fund is to maintain your post-retirement expenses.
Format of Salary Slip
Almost most companies follow different formats of salary slips. Following is a basic structure mentioned for a salary slip consisting of the following:
- Company name, Company address, Salary Slip month, and year
- Employee Name, Employee Code, Designation, Department
- Employee PAN/Aadhaar, Bank Account Number
- EPF Account Number, UAN (Universal Account Number)
- Total Working Days, Effective Working Days, Taken leaves
- Itemized list of Earnings and Deductions
- Net pay in numbers along words
Your pay slip may have different and additional information as it depends on the company to the company and what we have discussed here are only a few important components. From now, make sure to have a meticulous look at your salary slip. A pay slip shows your existing financial status and also helps you to plan your financial planning.