Salary Slip – Format, Sample Template Download, Importance & Components

Every salaried person receives salary slips periodically, but most of them don’t know the importance of this document.

Meaning of a Salary Slip

A salary slip/pay slip is a document issued by an employer to an employee. It contains a detailed description of the employee’s salary components like HRA (House Rent Allowance), LTA (Leave Travel Allowance), Bonus paid etc and deductions for a specified time period, usually a month.

It may be issued on paper or digital salary slips may be mailed to the employees. Employers are legally bound to issue salary slips to their employees periodically, as proof of salary payments to employees and deductions made. Some smaller companies may not regularly provide a salary slip and in such cases, the employee can ask the employer for a Salary Certificate.

Salary Slip Format

Download Salary Slip Sample Template:

The format of salary slips differs for different companies. However, the basic template for a salary slip includes the following:

• Company name, address, logo, salary slip month and year
• Employee name, code, designation and department
• Employee PAN/Aadhaar number and bank account number
• EPF account number and UAN (Universal Account Number)
• Total work days and number of leaves
• List of earnings (income) and deductions
• Net pay in numbers and words

An example of a salary slip is provided below:

Importance of a Salary Slip

Basis for income tax payment

The salary slip forms the basis for income tax calculation. It helps to prepare the Income Tax Returns (ITR) and determine how much tax is to be paid or how much refund is to be claimed by the employee for the year.

Provides access to various facilities

The salary slip gives employees access to various free or subsidised facilities provided by the government such as medical care, subsidised food grains, etc.

Helps to borrow

Salary slips provide lenders with assurance that their lendings will be repaid. It is an important document to avail loans, credit, mortgage and other borrowings from banks and financial institutions.

Helps assess offers

Employees can compare offers from new employers based on their previous salary slips. It also helps them negotiate salary with new employers or for new roles.

Proof of employment

Salary slips are important legal evidence of employment. Often, while applying for travel visas or to universities, applicants are asked to furnish a copy of their salary slip as proof of employment and designation.

Helps to avail loans

A salary slip contains all the details of the salary. It acts as legal proof of the ability to repay the credit taken as a loan within a prescribed time limit. It helps to assess the financial stability of the employee seeking a loan. Therefore, a salary slip is a document that is required when applying for a loan or even a credit card. Banks and lending institutions usually ask for past two to three months’ salary slips at the time of granting loans. 

The creditworthiness of the borrower/employee is analysed based on the salary slips. When the employee avails a loan, then every month a fixed EMI will get deducted from the salary received by the employee. Thus, the salary slip also helps in setting a credit limit and is an effective asset during the time of providing the loan.

Components of a Salary Slip

Components of a salary slip can be understood in two parts:

Incomes

The following components appear under the incomes part of the salary slip:

• Basic Salary: 

It is the most important component of salary and usually comprises about 35% to 40% of the total salary. It is the basis for the determination of various other components of the pay slip. Basic salary is the first component on the earnings side of the pay slip.

• Dearness Allowance: 

It is an allowance paid to reduce the impact of inflation on the employee. It is usually 30-40% of the basic pay. Dearness allowance (DA) is based on the cost of living and thus it is different for different locations. DA is considered as pay for income tax purposes, therefore, it is taxable. It appears on the earnings side of the pay slip right after the basic pay. 

However, DA is provided only to employees working in government offices and public sector companies. Private sector employees do not have this component in their pay slips.

• House Rent Allowance (HRA): 

HRA is an allowance paid to employees for house rent paid by them. HRA is based on the location of the rented house and is usually about 40% to 50% of the basic salary. The whole of HRA received by employees is not always fully tax-exempt. The tax exemption that can be claimed will be the least of the following:

1. The amount received as HRA from the employer
2. Actual rent paid minus 10% of salary
3. 50% of the basic salary for those living in metro cities and 40% for those living in non-metro cities

Calculate your HRA with ClearTax HRA Calculator.

• Leave Travel Allowance: 

It is an allowance to cover the cost of travel of employees and their immediate family members while on leave. Income tax exemption is available on the actual travel costs provided as Leave Travel Allowance (LTA) by the employer. The proof of the journey is required to avail deduction subject to certain limits. However, an LTA exemption is available for only up to two journeys performed in a block of four calendar years.

• Conveyance and Medical Allowance: 

Conveyance allowance is an allowance given to cover the cost of travel from home to work and from work to home. The conveyance allowance provided by an employer up to an amount of Rs.1,600 per month (Rs.19,200 annually) is exempt from tax. Medical allowance is given to cover the medical expenses of the employee If the amount exceeds Rs.15,000 per year, the same becomes taxable. 

However, the Budget 2018 replaced the conveyance allowance Rs.19,200 and medical reimbursement of Rs.15,000 per annum. From the FY 2019-20, a standard deduction of Rs.50,000 is provided to employees in place of conveyance and medical allowance.

• Performance Bonus and Special Allowance: 

Performance bonus is usually given to employees as a mode of encouragement. Special allowances are given to employees to meet certain expenses. These allowances vary from company to company and they are taxable.

• Other Allowances:

There may be various other allowances paid by employers to employees for different purposes. Employers may choose to categorise these allowances in a separate head, or club them together under ‘Other Allowances’.

Deductions

The following components appear under the deductions part of the payslip:

• Employees Provident Fund (EPF): 

It is a compulsory contribution by the employee towards a PF account help in his name with certain exceptions. The employer pays 12% of the employee’s basic salary towards the EPF account. However, an employee’s contribution towards the EPF is exempted from tax as per Section 80C of the Income Tax Act. The employer also makes a similar contribution on behalf of the employees for their EPF/retirement fund.

• Professional Tax: 

It is a tax payable based on the employee’s tax slab and is applicable only in a few states in India. Every state has its own laws and regulations to govern the professional tax of that particular state. This amount is deducted from the taxable income and it appears on the deduction side of the pay slip.

• Tax Deductible at Source (TDS): 

TDS is deducted by the employer on behalf of the income tax department from the employee’s salary based on the tax slab of the employee after considering other factors.

Difference Between Cost to Company (CTC) and Gross Salary

Cost to the Company (CTC) is the total amount that an employer spends on an employee. The CTC comprises various components such as HRA, special allowance, other allowances, EPF, professional tax, other deductions, etc. Whereas, the gross salary is the amount that an employee receives before any deductions. Gross salary does not include EPF and gratuity. The net pay (net salary) is the salary that an employee receives after deductions are done from the gross salary.

For example: Your Cost To Company (CTC) is Rs.8 lakh. The employer gives you a bonus of Rs.40,000 for the financial year. 

• Your total gross salary is Rs.8,00,000 – Rs.50,000 = Rs.7,50,000 (the bonus is deducted from the Cost to Company).
• The professional tax of Rs.2,400 a year (this is the professional tax in Karnataka) is deducted from the gross salary.
• The contributions of both the employer and you (employee) towards the Employee Provident Fund (EPF) are deducted from the gross salary. EPF contribution is computed on a maximum salary limit of Rs.15,000 per month. It translates to 12% of Rs.15,000 = Rs 1,800 a month or Rs.21,600 per year.
• In addition, you also have a yearly deduction of Rs.3,000 towards employee insurance.
• Total Deductions = Professional tax + EPF (Employee Contribution) + EPF (Employer Contribution) + Employee Insurance. Total Deductions = Rs.2,400 + Rs.21,600 + Rs.21,600 + Rs.3,000 = Rs 48,600 anually.

Thus, take home (net) salary = gross salary – total deductions. Net (take home) salary = Rs.7,50,000 – Rs.48,600 = Rs.7,01,400 annually.

Salary Calculator

Calculate your take-home salary with Cleartax Salary Calculator.

Frequently Asked Questions

How can I get my salary slip online?

The organisation of the employee issues salary slips every month generally through email. You can download or print your salary slip for each month. You can check your salary slip online on the company payroll software or the employee’s internal portal of your company. 

Should I save my salary slips and store them in a safe place?

Yes. The salary slip is important when you take loans from banks, prepare your income tax returns, change jobs, etc. Thus, you need to download your salary slips and store them in a safe place. For many purposes like bank loans, change of employment or proof of employment, the past 3 months salary slips is enough. However, for tax-related purposes, you need to have salary slips of at least 22 months from the end of the tax year they relate to.

Are handwritten salary slips legal?

Yes. The salary slips can be issued electronically or on paper, i.e. handwritten. The handwritten salary slips have the same value as electronically issued salary slips. A copy of handwritten salary slips can be produced when obtaining bank loans, as proof of employment, etc.

How can I make a simple salary slip?

You can make a salary slip of your employees either through an excel sheet or a pay slip software. You need to add employee data, i.e. earnings, deductions, EPF, bank details, etc on the excel spreadsheet manually or on the software to calculate the net salary and generate the salary slip.

Can I make my own salary slip?

Employees cannot make a salary slip as it must be generated by the employer. Companies or organisations can make a salary slip either through manual or online methods. The manual method of making a salary slip involves entering the employee data on Excel spreadsheets. You need to enter details and the relevant values for earnings and deduction components. After adding the data, you need to get it printed.

The online salary slip can be generated instantly on salary slip software. Online salary slips have a standard format that is easy to use and understand. It includes details such as employee ID, employee name, designation, earnings, allowances, tax deductions, EPF deductions and bank details. You need to add the relevant values to the template and the salary slip will be generated instantly.

How do I download my payslip?

The HR or finance teams may send the salary slip via e-mail to an employee or upload the same on the company portal. If the salary slip is sent via email, you can simply open the attachment, enter the password, and download your salary slip. However, if it has been uploaded to the portal, you need to follow the below process to download the salary slip: 

• Log in to your company’s salary portal using your credentials.
• In the profile section, check for the ‘Salary Slips’ option. This is usually under the ‘My Statements’ tab.
• Click on the ‘Payslip’ option.
• You can view the salary slip as per the year and month.
• You can download it from the online salary portal by clicking on the download button.
• You might need to enter a password to open the downloaded salary slip. In such a case, enter the password and the pay slip will open in view mode. 
• You can then print a copy of the salary slip and use it as a document for proof of income. 

How can I edit the salary slip in a PDF file?

Only the employer must edit the salary slip before sending it to an employee. However, if an employee receives a salary slip that contains a mistake, he/she should not edit it without informing HR or management as it will amount to fraud. Any mistake in the salary slip can be rectified by raising a request with the HR or finance team and asking them to issue a revised/corrected salary slip for it to be legally valid. The employer will then revise/correct the salary slip on the software/excel sheet used by the employer to generate the salary slip and send the corrected salary slip to the employee.

Do banks ask for salary slips?

Most banks will ask for your last two or three months’ salary slips. The salary slips act as proof of your earnings based on which your loan is sanctioned. It is also required to be given to the banks when getting a mortgage or such other borrowings.

How does a salary slip help to save my Income Tax?

A monthly salary slip contains several components like Dearness Allowance (DA), House Rent Allowance (HRA), Medical Allowance, etc., that help an employee save income tax every year. The tax authorities enable organisations to structure the employees’ salaries in a way that enables them to save tax through several allowances included in their income. These allowances and tax deductions are stated in the salary slips, which helps you save Income Tax.

What is professional tax?

The state government levies a professional tax on the income earned by salaried employees, freelancers, and professionals, including chartered accountants, doctors, lawyers, etc. Different states have different methods of calculating professional tax. However, the maximum amount that can be levied as professional tax in a year is Rs.2,500. Employers deduct professional tax from the employees’ salary at the prescribed rates and pay it on their behalf to the State Government.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

Related Articles

Save Taxes for Salaried Individuals

Taxes for salaried individuals