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
