Pay slip/ Salary slip Details with Basic pay, PF, Allowance, Deductions, Taxes and Gratuity

Lots of us struggle to figure out what are these details in “Payslip” also called as Salary slip, particularly during the early stage of our career.   Nowadays almost all the concerns pay their employees directly into their bank account and they gave a payslip which depicts their full payment details. Here are the details of payslip from A-Z, hope it helps you!

Payslip - a slip of paper included with your pay that records how much money you have earned and how much tax or insurance etc. has been taken out. It is document that gives the details of the salary of an employee during the particular period. Normally the salary is paid on monthly basis. The Salary Slip / Pay Slip gives the details of the particular employee like Days Present, Days Absent, Basic Earnings, Other Allowances and the Deductions of Taxes and other dues. 



By looking into a salary slip we across lots of new terms like Basic pay, allowance, deductions etc., But before these there come one common word CTC, CTC stands for Cost to Company. It’s nothing but the cost spends by your company directly or indirectly because of employing you.  In employee prospect it’s the money given to you, in company prospect it’s the money spent because of you.


Some of the main elements in our salary slip are Basic Pay, Dearness Allowance (DA), Provident fund (PF) Incentives or bonuses, Conveyance allowance, House Rent Allowance (HRA), Medical allowance, Leave Travel Allowance or Concession (LTA / LTC), Vehicle Allowance, Telephone / Mobile Phone Allowance, Special Allowance

Basic pay:

Let’s start from Basic pay, so that it is easy to understand the whole concept easily. Basic pay is the main core of the salary. Depends on the grade of a person in a company basic pay is finalized. Based on the basic pay many other components are calculated. The best example is the calculation of provident fund (PF) is done by taking 12 % of your annual basic pay.

Provident fund (PF):

PF is a long term investment. It is one of the lowest risk investment avenues, as it is backed by the government. Each month, a certain percentage of your salary (usually, a percentage of your Basic Pay) is invested in it. This percentage varies from company to company, and is usually between 8% and 12%. (12% is the norm). It is mandatory for you to contribute 12% of your basic towards provident fund (PF). Your employer makes an equal contribution (12% of your basic) to your PF account. PF amount is excluded from Income tax.

Dearness Allowance (DA):

The Dearness Allowance is paid out to compensate for increase in the general cost of living due to inflation. DA is paid out every month. It is a taxable component of your salary.

House Rent Allowance (HRA):

House Rent Allowance (HRA) is paid out to meet full or part of your expenditure on renting a house. HRA may be expressed as a percentage of your basic. House Rent Allowance is paid out every month. HRA can be tax-free, subject to certain conditions.

Incentive / Bonus:

Incentives or bonuses are paid out depending on your performance (and, at times, depending on the company’s / division’s performance as well). This is to reward employees for their better performance. Incentive is usually paid out monthly. A bonus can be paid out monthly or can be paid out once a year. Incentive and bonus are fully taxable.


Conveyance Allowance:
Conveyance allowance is paid out to meet your expenses on commute related transportation. Conveyance allowance is paid out every month. Conveyance allowance up to Rs. 800 per month (Rs. 9,600 per year) is tax-free. Any amount over it is taxable.

Medical Allowance (Reimbursements):
Medical allowance is paid out to help you with the amount that you spend on medical treatment and medicines. Medical allowance can be paid out monthly or yearly. Medical allowance is a fully taxable component of your salary. However, if you receive reimbursement of your medical expenses against submission of bills, such medical reimbursement is tax-free up to Rs. 15,000 per year.

Leave Travel Allowance / Concession (LTA / LTC):
LTA is paid to encourage you to take periodic vacations and travel with your family. Leave Travel Allowance is usually paid out once a year. LTA / LTC can be tax-free, provided certain conditions are met.

Special Allowance:
Special Allowance can be given out to pay money that doesn’t fit into any other head. Such allowances are paid out monthly, and are taxable.

Gratuity:
Gratuity is a lump sum payment made to the employees based on the duration of their total service. The gratuity benefit is payable on cessation of employment (either by resignation, death, retirement or termination, etc) by taking the last drawn salary as the basis for the calculation. Eligibility of gratuity is if a person worked for any organization with 4 year completed + 240 days (in fifth year) is entitled for gratuity. Formula to calculate gratuity amount is:
W x Y x 15/26
Where W = Last Wage drawn i.e., basic + DA
Y = number of completed years of continuous service (six months or less to be ignored and more than six months to be counted as full year.
15 = 15 days salary
26 = No. of working days in a month.
But there is a limit to gratuity amount; it shall not exceed Rs. 3.5 lakhs