Salary slip also known as a pay slip is provided to employees to record their monthly pay and allowances. It is a document that makes the employees aware of their incomes and deductions as it would differ from employee to employee.
Importance of Salary Slip
- The salary slips act as evidence of employment.
- It proves that the organization has permanently recruited an employee.
- This is handy in negotiating with new employers for a better pay.
- Salary slips aid to apply for loans in banks.
- It is an authentic proof of income and used to file income tax returns.
- It serves as a proof for PF and insurance deductions.
All employees must receive payslips on a monthly basis as it is the proof of his employment in an organization and is required for various compliances filing like income tax filing and PF return filing. If an employee has not received it, he/she could speak with their payroll team to have it sent automatically post payroll processing.
Computerised and Manual Salary Slip
Manual salary slips are outdated now as most of us work in paperless offices and the pdf file of a salary slip is received on the date of the salary. Issuing manual salary slip might be time-consuming and might consume a lot of paper. Computerised payroll consumes substantially lesser time. Computerized payslip or the E-payslip could be printed or used at the employee’s convenience. Lesser cost is incurred as it is automated. It secures the data, thereby maintaining its confidentiality. Manual papers are generally issued to provide the original salary slip with the company’s seal and signature of the authorized official.
Validity of a Salary Slip
Manual payslip and the e-payslip are lawful and valid proof documents. It had to be noted that an issued and authorized payslip must not be manipulated or modified as it might be a criminal offense to edit a pay slip.
Components of a Salary Slip
Organizing salaries and processing payroll is an inevitable responsibility for every HR and payroll team. While creating the ideal salary structure, we must keep in mind that the payslip should be tax efficient, reduce employer’s liability and must be compliant with the minimum wages and PF Laws. The components are sub-divided into 2 sides which are as follows.
- Income or earnings
- Deductions
We look into the various components of a salary slip in the paragraphs below:
Income- The payslip is divided into 2 sides, we record all types of incomes or gains or allowances on the left hand-side of the payslip. Let’s examine the possible incomes recorded on a payslip of an employee.
Basic Salary + Dearness Allowance- This is the prime and main component of a salary structure. It is the biggest component comprising around 40% to 45% of the total salary. This is the basis for calculation of various other components such as PF, gratuity, ESI etc. This component are completely taxable.
Just as basic salary, dearness allowance too would affect the salary components. It is to be noted that both basic salary and dearness allowance must neither be high nor be low. If high, it would affect the tax liability of an employee. If low, it would be non-compliance of the state’s minimum wages rules.
House Rent Allowance- The House Rent Allowance, as the name suggests, is an allowance to pay out the house rent of employees, which could be claimed in the year end. The employee could get an exemption from income tax for HRA. HRA would be calculated usually at 50% of the Income Tax. Know more about House Rent Allowance.
Conveyance Allowance- This has been mainly added for an employee to cover his expenses from home to work and return, it is also exempt from income tax to a certain amount. The maximum amount that is tax deductible under this component is Rs. 1,600 a year to Rs. 19,200 a year.
Leave Travel Allowance– Leave travel allowance (LTA) reimburses employees for their travel during their leave, provided it is within the confines of the country. This component is mostly used by employers due to its tax emoluments. An employee could claim tax benefits for the fare expenses paid for his/her family when they take a holiday. However, there are restrictions to what you can claim as tax benefits:
- Only the travel fare expenses can be claimed.
- Stay and food on your trip aren’t covered.
- Travel must be within India.
- Immediate family that are mainly dependant on the employee are only covered under LTA.
Medical Allowance- Medical allowance is a reimbursement for medical expenses made by employees. This amount is tax deductible up to Rs. 15,000 a year or Rs. 1,250 every month. In order to claim tax benefits under this component, employees must submit proof of their medical expenses.
In case the Rs. 1,250 isn’t claimed in one month, then this amount is carried forward to the next month. This means that a progressive amount of Rs. 15,000 could be claimed at the end of the year. This is also the suggested quota that establishments generally assign to this section of the salary set-up.
Child Education Allowance- This payment is made towards tuition fees of employees’ children and is tax deductible for the amount of about Rs. 100 every month for a maximum of two children. Hence, this sum is generally fixed up to Rs. 2,400 annually.
Special Allowance- Special allowance is the component generally used by companies as the residue of Cost to Company (CTC) when the rest of the components have been paid out. This component is fully taxable and is also considered for the computation of Provident Fund
Deductions- Deductions are facets of the salary structure wherein portions of CTC are deducted from the take-home salary of employees. We record all types of deductions on the right hand-side of the payslip. Let’s examine the possible deductions recorded on a payslip of an employee.
Provident Fund- Provident Fund (PF) is calculated at 12% of Basic + Dearness Allowance + Special Allowance. The employer and the employee both must make an equal contribution of 6% each. This is applicable to establishments which have 20 + employees on their employment. If an employee’s Basic + DA + Special Allowance is less than Rs. 15,000 then it is compulsory for Provident Fund to be deducted. Other employees earning over Rs.15,000 can opt out by filling form 11 (In case this is the first employment and UAN has not been generated) or can choose to have PF deducted fixing the threshold at Rs. 15,000. For employees having UAN, the monthly minimum contribution would be Rs.1800.
Employees State Insurance- Deductions towards ESI are compulsory for employees whose gross salary does not exceed Rs. 21,000. It is only applicable in establishments where there are 20 or more employees within the Rs.21,000 gross salary bracket. Employees have to make a contribution of 1.75% of the gross salary and employers have to make a contribution of 4.75% of the gross salary.
Professional Tax- Professional tax is the tax imposed by Governments on salaried employees. The states that has a levy of professional tax are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. The amount of professional tax that is deducted differs from state to state, whereever it is applicable
FAQs
What is a salary slip?
A salary slip, also known as a payslip or pay stub, is a document provided by an employer to an employee that outlines details of their salary for a specific pay period. It typically includes information such as gross salary, deductions, taxes, and net salary.
Can I use a salary slip as proof of income?
Yes, a salary slip can serve as proof of income when applying for loans, mortgages, or other financial transactions. Lenders often require proof of income to assess an individual’s ability to repay a loan, and a salary slip provides this information.
Why is a salary slip important?
A salary slip serves as a record of an employee’s earnings and deductions for a specific period. It helps employees understand how their salary is calculated and provides transparency regarding deductions for taxes, benefits, and other contributions.
Practice area's of B K Goyal & Co LLP
Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice | Psara License | FCRA Online
Company Registration Services in major cities of India
Company Registration in Jaipur | Company Registration in Delhi | Company Registration in Pune | Company Registration in Hyderabad | Company Registration in Bangalore | Company Registration in Chennai | Company Registration in Kolkata | Company Registration in Mumbai | Company Registration in India | Company Registration in Gurgaon | Company Registration in Noida | Company Registration in lucknow
Complete CA Services
RERA Services
Most read resources
tnreginet |rajssp | jharsewa | picme | pmkisan | webland | bonafide certificate | rent agreement format | tax audit applicability | 7/12 online maharasthra | kerala psc registration | antyodaya saral portal | appointment letter format | 115bac | section 41 of income tax act | GST Search Taxpayer | 194h | section 185 of companies act 2013 | caro 2020 | Challan 280 | itr intimation password | internal audit applicability | preliminiary expenses | mAadhar | e shram card | 194r | ec tamilnadu | 194a of income tax act | 80ddb | aaple sarkar portal | epf activation | scrap business | brsr | section 135 of companies act 2013 | depreciation on computer | section 186 of companies act 2013 | 80ttb | section 115bab | section 115ba | section 148 of income tax act | 80dd | 44ae of Income tax act | west bengal land registration | 194o of income tax act | 270a of income tax act | 80ccc | traces portal | 92e of income tax act | 142(1) of Income Tax Act | 80c of Income Tax Act | Directorate general of GST Intelligence | form 16 | section 164 of companies act | section 194a | section 138 of companies act 2013 | section 133 of companies act 2013 | rtps | patta chitta
