For many earning professionals, salary slip could be an unsolved puzzle with confusing figures and terms. Don’t let it remain so, it is important that you understand pay slip. Here, we help you decode and learn about the components of a salary slip and what goes into the famous word “CTC”, cost to the company!
What Is a Salary Slip and Cost to Company?
Every company releases a salary package to an employee while hiring. The cost to Company (CTC) is a term for the total salary package, indicating the total amount of expenses spent by an employer on the concerned employee for a year. Employees may not receive the CTC amount directly. Salary slip or pay slip is released monthly with a breakup of the components.
What Are the Components In Salary Slip?
The main components of salary slip include:
Basic Salary is 35-50% of the total salary and is the most important part of the salary slip. Other components are structured around this component. You get all the amount in hand and it is 100% taxable.
House Rent Allowance is 40-50% of the basic salary. This allowance is to pay your house rent and varies based on the location. Tax exemption could be availed on this component based on whatever is the lowest
- rent minus 10% amount of the basic salary component
- basic pay’s 40%
- as per the allotted HRA allowance
Leave Travel Allowance (LTA) is to cover the employee and the immediate family members’ travel cost, while on leave. On providing the journey proof, you could avail deductions subject to certain limits. The exemption is applicable for 2 journeys in a block of 4 calendar years.
Medical Allowance is to cover the incurred medical expenses during the employment period. It is subject to providing expense proofs like medical bills and is usually a reimbursed expense. The allowance is exempt up to INR 15,000 per annum but if no proofs are offered, the amount will be fully taxable.
Performance bonus or special allowance is 100% taxable. It is given to reward employee’s performance.
Other Allowances are based on the industry standard or the company and most of them are fully taxable. The amount might or might not add to your in-hand salary.
Talking to HR helps get a clear understanding of the in hand and tax implications of the components of the salary slip.
Provident fund comes under the deduction part of the salary slip and is typically 12% of the basic salary. It is diverted to Employees’ Provident Fund Organisation, a government-controlled body. The contribution is based on the company’s policy. If you opt to choose out the PF scheme, make regular investments through equity mutual funds to get higher returns.
Professional tax is payable in the states of West Bengal, Karnataka, Andhra Pradesh, Maharashtra, Tamilnadu, Telangana, Gujarat, Chhattisgarh, Kerala, Assam, Meghalaya, Orissa, Jharkhand, Bihar, Tripura and Madhya Pradesh. It is subjected to the gross tax slab and is deducted from taxable income.
Tax deductible at source. The employer, on the behalf of the income tax department, deducts the amount under this category, based on the overall tax slab. You can reduce this burden by saving tax under Section 80C or other sections beyond 80 C.
In conclusion, it is important to thoroughly understand salary slip to make the maximum tax calculations or to choose a better opportunity. When comparing offers, it is critical to check for basic salary and special allowances. Understand if any of the allowances are performance based or event based. Besides focusing on the salary in hand and check for other benefits like commute facility, accident insurance, health insurance, etc. Make the right choice to earn more.