It is important to understand the Salary Slip format to do better tax planning.
What is Salary Slip?
A salary slip is laymen’s terms is a document issued to employees by their employers. This document contains components like HRA, LTA, Bonus paid and deductions usually a month.
Salary Slips are generally given to the employees via email or is delievered on paper.
Benefits of Understanding Salary Slip and its Format
- Plan your investments so that you can optimally utilize the deductions and reduce the tax liability. This will reduce the TDS deducted from your salary every month.
- Understand how much of your total salary goes into forced savings like Employees’ State Insurance (ESI), Employees Provident Fund (EPF), etc. The employer determines these components. And are not under your control.
- Evaluate different job offers in order to determine which one is more beneficial in terms of salary structure.
Importance of Salary Slip
Salary Slip is an important employment certificate. It helps the employees seek loans, future employment, income tax planning, availing government subsidies, and acts as a legal document of employment.
- Proof of Employment
- A salary slip serves as legal proof of employment. While applying for travel visas or universities and colleges, applicants must submit a copy of salary slip as legal proof of the last drawn salary and designation. The document holds as legal proof against the salary claim
- Income Tax Planning
- It contains the monthly break-up of earnings and deductions. It also has components that include tax deductions. It also includes the break-up of earnings. TDS helps an employee plan his/her tax liability in advance. The tax is calculated on the take-home salary based on income tax slabs
- Thus, it helps in availing maximum benefits of tax deductions, rebates, allowances, and concessions within the accepted bounds under the Income Tax Act of 1961. Salary slips also assist in calculating the TDS returns and income tax refund. Therefore, it is essential to keep track of the salary break-up to keep up with Income Tax
- Acquiring Loans
- A salary slip has all the details of the salary and designation. It serves as legal proof of the credit-paying ability of an employee. Further, availing of loans, credit cards, mortgages, and other borrowing is based on the salary slip. The salary slip helps in setting a credit limit. Also, it acts as an eligibility criterion to avail of a loan or credit card. With this, the salary slip determines your taxes in the financial year as well
- Access to Government Subsidies
- The salary slip can be used to avail of certain free services. Such services include medical care, food grains, etc.
Sample Salary Slip Format
Components of Salary Slip
Earnings contain the components which you earn. Deductions contain the amount deducted from what you earn.
Salary Format and its 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.|
||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
|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:
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.||
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.
Deductions Component and its 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 the 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.|
No, it is taxable under the head income from other sources while filing Income Tax Return on Income Tax Portal
Yes, these are in the nature of perquisites. Hence, they are taxable as per the rules prescribed in this behalf.
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.