16 how to read your payslip

What is a payslip or a salary slip?

A salary slip is a document that serves as proof of salary paid by an employer. The document includes information regarding contractual benefits, deductions, and the employee’s net salary for a given month. Employers should be careful about providing salary slips to their employees because it puts them under the scope of government regulations and checks for fair labour practices. It works as both a proof of payment and employment. Salary slips could be either in physical or digital format.

What are the essential elements in a salary slip?

An employer is required to share the salary slip every month with its employees. It gives many different kinds of information such as your in-hand salary, the allowances you will be getting along incentives your employer is offering. Additionally, you also learn about your tax deductions.

Some of the components that are mandatorily present in a payslip include:

Income statements, which includes:

  • Basic salary: it is the main element of a salary. At the start of the career, it constitutes a higher portion of the total pay, however, with time it decreases in proportion
  • House Rent Allowance (HRA): This allowance is paid to the employees who live on rent
  • Conveyance Allowance (CA): You will get this allowance if you travel to work.
  • Cost to Company (CTC)- This is indicative of the total salary and shows the amount company spends on a particular employee
  • Medical Allowance (MA): This is paid for the medical expenses
  • Dearness Allowance (DA) – This is only applicable for public sector employees and it is paid to counter the effects of inflation.
  • In-hand salary- This is the amount you receive after all the deductions have been made
  • Special Allowance (SA)- This is paid for motivation and its amount is dependent on how you perform at work.
  • Leave Travel Allowance(LTA)- this allowance is paid to cover the travel expenses that you and your family incurred in a holiday leave

Deductions, such as:

  • Professional tax – This tax amount is charged in certain states for each professional who earns a salary.
  • Tax Deducted at Source (TDS) – Depending on the income tax slab your salary falls in, this is deducted by the company and paid to the government. You can use a TDS rate chart to find out which slab you belong to and how much of your salary is deducted in it..
  • Employee Provident Fund (EPF) – this is only applicable for private-sector employees. This is part of a retirement benefits scheme.

How is CTC different from in-hand salary?

CTC or cost to a company is the total amount a company spends on one employee. It includes allowances and expenses such as HRA, CA, EPF, medical allowance, gratuity etc. It can be seen as the amount of money an employer spends on the recruitment of an employee.

Gross salary is the salary before deductions are made. This is generally not shown in the payslip however, it is mentioned in the offer letter.

Your in-hand salary is the money you get after all the deductions including tax payments have been made. It is lesser than CTC since in CTC deductions are not made. If you are confused about the calculations you can simply use a CTC to take home calculator. If you are looking for such a calculator then you should take a look at Khatabook’s website.

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