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

Every salaried individual receives salary slips periodically, but most of them don’t know the importance of this document. In this article, we have covered the importance and uses of salary slip, salary slip format, salary slip components and salary calculation.

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. Please note that HRA tax exemption can be claimed only under the old tax regime.

• 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 only under the old tax regime. 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. HRA tax exemption cannot be claimed under the new tax regime.

• 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 FY 2019-20, a standard deduction of Rs.50,000 under the old tax regime and from FY 2023-24, a standard deduction of Rs.75,000 under the new tax regime, 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.

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