Every salaried person receives the salary slips periodically, but most of them don’t know the importance of this document. In this article, we will explore the following topics:
What is a Salary Slip?
A salary slip is a document issued by an employer to an employee. It contains a detailed description of the employee’s salary components like HRA, LTA, Bonus paid etc and deductions for a specified time period, usually a month. It may be issued on paper or mailed to the employee.
Employers are legally bound to issue salary slips to their employees periodically, as a proof of salary payments to employees and deductions made.
Salary Slip – Sample Template
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 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.
Salary slips provide lenders assurance that their lendings will be repaid. It is an important document to avail loans, credit, mortgage and other borrowings.
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 an 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.
Components of a Salary Slip
Components of a salary slip can be understood in two parts:
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 determination of various other components of the pay slip.
- Dearness Allowance: It is an allowance paid to reduce the impact of inflation on the employee.
- 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 basic salary.
- Conveyance Allowance: It is an allowance to cover cost of travel from home to work and from work to home.
- Leave Travel Allowance: It is an allowance to cover the cost of travel of employees and their immediate family members while on leave.
- Medical Allowance: It is an allowance to cover the medical expenses of employee while in employment.
- Performance Bonus and Special Allowance: It is usually given to employees as a mode of encouragement.
- Other Allowances: There may be various other allowances paid by employers to employees for different purposes. They are covered here. Employers may choose to categorise these allowances in a separate head, or club them together under ‘Other Allowances’.
The following components appear under the deductions part of the payslip:
- Provident Fund: PF is a compulsory contribution by the employee towards a PF account help in his name with certain exceptions.
- Professional Tax: It is a tax payable based on the employee’s tax slab and is applicable only in a few states in India.
- Tax Deductible at Source: TDS is deducted by the employer on behalf of the income tax department from employee’s salary based on the tax slab of the employee after considering other factors.