Understanding Salary Slip and its Format

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Hiral Vakil

EPF
Salary Components
Salary Income
TDS

It is important to understand the Salary Slip format to do better tax planning. Following are the benefits of understanding salary income and its Structure:

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Sample Salary Slip Format

Components of Salary-Salary Slip
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
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ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
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Components of Salary Slip

Earnings contain the components which you earn. Deductions contain the amount deducted from what you earn.

Let’s take a look at Salary Structure and its Taxability

Serial No. Component Definition Taxability
1 Basic salary This is the main component of your salary. It is also the basis for other components of Salary.  It is 100% taxable. And a part of your take-home salary.
2 Dearness Allowance (DA)  Only Government employees get DA. DA is paid to counter the inflation impact. It is calculated as a percentage of the Basic Salary.   It is 100% taxable. And a part of your take-home salary.
3 Conveyance Allowance


This allowance is granted to cover the cost of traveling between home and work. The lower of the following will be exempt from tax:
1. Rs. 1600 per month or
2. Conveyance actually received

4
HRA 
HRA is paid to cover the house rent expense. This may consist of 40% – 50% of your basic salary.

The lower of the following will be exempt from tax:
1. 40% of your Basic Salary
2. Actual rent paid minus 10% of the Basic Salary
3. HRA actually received from the employer

In the case of No Rent is paid then HRA will be 100% taxable.

5 Medical Allowance This allowance is given to employees to cover the medical expenditures incurred during the employment period. These are usually in the form of reimbursement so the employee has to submit the proof of expenditure incurred.


Maximum Rs. 15,000 is exempt per annum subject to the submission of proof of medical bills. Discontinued from FY 2018-19. 

6
Special Allowance and performance bonus


These allowances are over and above your Basic Salary. A performance bonus is usually linked to your past performance and is usually paid once or twice a year. 
It is 100% taxable. And a part of your take-home salary.


7 LTA It allows an employee to take on a trip within India. The allowance is based on actual expenditure incurred An employee can take two trips in a block period of four years. 
The exemption is allowed for the actual expenditure incurred for the trip subject to certain limits. Any expenditure incurred during the trip for the purpose other than travel will not be exempt LTA.

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Let’s take a look at Deductions Component and its Taxability

Serial No. Component Definition Taxability
1 Professional Tax It is a tax on employment. This tax is deducted from your salary by the employer and deposited to the state government. Professional Tax is allowed as a deduction from your salary income.
2 Employee’s Provident Fund (EPF)  Usually, 12% of your basic salary goes towards Employee’s provident fund. This amount is matched by the employer subject to certain limits which may vary as per company policies. This is a forced investment since every company with over 20 employees, has to contribute towards PF. It is allowed as a deduction from total income.
3 Tax Deducted at Source (TDS)  Based on your total taxable income, your tax is calculated as per the applicable slab rate. This tax is deducted from your salary by your employer and deposited to the Government on your behalf. You can find your TDS from form 16, part A which is generated by TRACES and provided to you by your employer. This amount represents the tax deducted from your salary and deposited to the government by your employer. This can be lowered by utilizing the deduction limits optimally.
Guide : Salary Income and Taxes
Learn more about Salary Income and Taxes
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Guide : Salary Income and Taxes
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FAQs

Is family pension taxed as salary income?

No, it is taxable under the head income from other sources while filing Income Tax Return on Income Tax Portal

My employer reimburses to me all my expenses on grocery and children’s education. Would these be considered as my income?

Yes, these are in the nature of perquisites. Hence, they are taxable as per the rules prescribed in this behalf.​​

Can I ask my employer to consider this loss against my salary income while computing the TDS on my salary? My income from let out house property is negative.

Yes but only to the extent of Rs. 2 lakh, however, losses other than losses under the head ‘Income from house property’ cannot be set-off while determining the TDS from salary.​​

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