Salary slip is a document that is received every month by the employee from the employer. It shows everything from gross salary to deductions to your net take home pay.
Salary slip will be sent every month once the salary is credited. When individuals change their jobs, it becomes vital to understand their salary slip so that they can negotiate a better salary.
Important things salaried individuals should know about salary slip:
Basic salary is most important part of your salary slip which contributes highest to the total amount of your salary. The percentage varies with individuals salary and company policies.
Salaried individuals should note that basic salary is taxable in the hands of the employee.
House Rent Allowance
House rent allowance is a benefit given on paying house rent. The percentage of the HRA will depend on the city, what this means is that 50 per cent of salary is eligible if an individual is residing in a metro, or else it is 40 per cent. Metro includes cities such as Mumbai, Delhi, Chennai, and Kolkata.
Note that tax benefits can be availed only when an individual is receiving house rent allowance as a part of his salary.
Allowances are fixed periodic amounts, apart from salary, which is paid by an employer for the purpose of meeting some particular necessities of the employee such as tiffin allowance, transport allowance, uniform allowance.
Transport allowance of Rs 1600 is fully exempt from tax under the Income Tax.
Medical allowance is a fixed amount which is paid by the employer to its employee. The amount is fully taxable in the hands of the employee.
On medical reimbursements and no tax is applicable up to Rs 15,000, if all the bills are furnished on time to the employer.
Leave Travel Allowance
Leave Travel Allowance is a type of remuneration paid by an employer to its employees for travel in the country. The amount paid is eligible for tax exemption under section 10(5) of the Income Tax Act, under certain conditions.
Other deductions which are part of your salary slip
Provident Fund is usually 12 per cent of your basic salary which will be contributed to your EPF account on monthly basis. The same percentage will be contributed by your employer towards your account.
Profession tax is a type of tax levied by state governments. An employer of the state is responsible for deduction from salary and payment of the same to the state government. Professional tax varies depending on the income of salaried individuals.
Every month an employer deducts a certain amount of tax from your salary depending on the income which is called as Tax Deducted at Source (TDS). The amount deducted will be paid to Income tax department.