A complete guide to decode your salary slip
Forget the Ramola Sikand and Tapasya of the telly land, the greatest vamp of all time is the one that shows up in your life at end of every month. Dressed to kill, she seduces you with her charm and you fall for what she promises you, only to realise much later that her promises were all untrue! You pick up your broken heart, and promise yourself that you will resist her secretive ways, and decipher her. But alas! Come next month, you end up falling for this vamp yet again!
Fellow Gruhinis I am talking about none other than the Salary Slip. It slithers into our email box and perplexes us with its mysterious numbers! So many of us have screamed, lost sleep over and finally given up over trying to understand those numbers?
Worry not! Your Gyaani Gruhini is here to help you make friends with the sneaky salary slip. To understand it better, keep your Form 16 also ready.
The good things in your salary slip
The first part will have your designation, the status of your casual and sick leave. Remember to store your provident fund account number mentioned in the slip as it will come handy when you want to transfer your PF account or withdraw from it.
The next segment is table of earnings and the mandatory deductions from the earnings.
Income, allowances and other salary benefits
Your total salary consists of basic salary, allowances and perquisites. Salary slips will usually mention the gross figure under each of these heads. This means the taxable portion of your allowances, provident fund and income tax deductions are yet to be made from that amount. Some slips will give annual figures, paid till date and provisional figures also.
Basic salary is the key component as your house rent allowance (HRA) and provident fund contributions are based on it. The house rent allowance (HRA) will be 50% (if you are in a metro city) or 40% (non metro city) of your basic pay. Next is the allowance such as special, travel, conveyance, meals, leave travel allowance and perquisites such as accommodation or car facility.
Don’t forget that these are gross amounts. To figure out the non-taxable portion, check the section of “Allowances exempt under section 10” in your Form 16. It will show exempt (non-taxable portion) of HRA, if any. It will also enlist the non-taxable portion of other allowances (usually conveyance allowance upto Rs 800 per month is exempt) or the actual amount of travel expenditure during leave period, for claiming leave travel allowance benefits. It will also show a medical allowance exemption of actual amount or upto a limit of Rs 15,000 whichever is lower.
Dont forget that above exemptions will be given based on certain criteria. For instance the amount of HRA exemption will depend on if you live in a rented accommodation or own house and a formulae laid out by income tax authorities. The LTA exemption will be given if you actually take leave, travel within India with your family and is a part of your salary component as mentioned in your offer letter. The medical allowance will be given for the amount for which you provide medical and hospital bills. Gyani Gruhini will help you understand these exemptions in another post.
There could be a variation in the allowances part of your monthly slip if your company has a policy of giving variable or performance linked pay on a periodic basis.
You probably hate to look at this section as this reduces the amount of salary credited to your bank account. It will usually include three deductions
Provident Fund: Calculate 12% of your “basic” salary and that’s your PF figure deducted from your salary and credited to your PF account. Hold your tears as this deduction is going to create a big fat amount by the time your hair turn grey!!!
Your employer is also contributing equal amount but it is not visible in your salary. It accumulates in your PF account.
Professional tax (PT): This isn’t a figure big enough to dent the net salary in your bank account.It’s a state government levy and the max you will have to pay is Rs 2500 in a financial year. Your taxable income is reduced by this amount. In your Form 16, this figure will appear under “Deductions” as “tax on employment”
Income tax: I know this obnoxious figure has been beyond your comprehension. To understand it better, the Form 16 will come in handy and salary slip together as the following table will help you arrive at the figure.
At the beginning of financial year, your employer calculates
Annual gross salary which includes salary, variable pay, allowances and perquisites (or do 12 times the monthly income as shown in salary slip)
Minus (-) the allowances such conveyance, HRA etc which are exempt
Minus (-) deductions (PT) as mentioned above
= Income under the head salaries
If you have any house property income, or profit and loss on shares and mutual funds, the same gets added to the above income, which gives you
=Your Gross Total Income
Minus(-) Deductions under section 80C, 80CCC, 80CCD, (maximum Rs 100,000 or actual amount whichever is lower) and 80 D (medical insurance premium of Rs 15,000)
=Total Taxable Income
Minus (–) Tax on the total income on the basis of rates below
(10% for Rs 2 lakh-Rs 5lakh, 20% for Rs 5 lakh-10 lakh, 30% for Rs 10 lakh and above)
= Total tax to be paid
Add Education cess of 3% of total tax amount
=Total tax payable in a financial year, recovered through monthly deductions from your salary slip
You can ensure that the tax cut in your salary slip is not more than what you ought to pay, if you give relevant proofs of investments, insurance premium receipts, home loan repayment papers etc to your HR department by the month of June every year or submit it as soon as you have made an investment.
Dear Gruhinis, I hope that with above guide, I have helped you better understand your salary slip. If any further queries persist, feel free to drop me a mail at email@example.com
Factual data in the story has been verified by Swati Kamath, S N Kamath and Associates, a Mumbai based tax and audit firm.