Salary slip, also known as pay slip is received every month by an employee from the employer. Salary slip is issued either on paper or through email. It includes information like gross salary, deductions to net salary and so on. Salary slip is issued every month, when the finance team credits your salary.
It is very important to understand your salary slip in order to negotiate for a better salary, when you change your job. It also helps you reduce tax liability by making full use of the tax deductions available.
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This is what salaried individuals should know about the salary slip:
1. Basic Salary
Basic salary is the important part of the salary slip. This is the amount paid before any allowances. Basic salary usually comprises of 40-50% of total salary. Basic salary is completely taxable in your hands.
2. House Rent Allowance
An individual is eligible to get tax exemption on HRA, only if he is receiving HRA as part of his salary and he actually pays rent.
3. Conveyance Allowance
Conveyance Allowance is paid to employees for the purpose of meeting commuting expenses from home to office and from office to home. Conveyance allowance is paid only if no transportation facility is offered by the company.
Conveyance Allowance up to Rs 1,600 per month is fully exempt under the Income Tax Act.
4. Medical Allowance
Medical Allowance is paid by the employer to employees to meet medical expenses, during the period of employment. Medical allowance paid by the employer is fully taxable in the hands of the employee.
Some employers offer their employees the medical reimbursement facility for medical expenses. If your employer offers you this facility, you get medical reimbursement up to Rs 15,000 a year, on furnishing medical bills. This amount is eligible for a tax deduction under the Income tax act.
5. Leave Travel Allowance
Leave Travel Allowance is paid by the employer to meet travel expenses for travel within the country. It includes the travel expenses of your family as well.
The amount paid as Leave Travel Allowance is exempt Under Section 10(5) of the Income Tax Act, on certain conditions.
6. Special Allowance and bonus
Special allowance and bonus are given by employers on an exceptional performance by the employee. These are 100% taxable in the hands of the employee.
1. Employee Provident Fund (EPF)
Under the EPF scheme, an employee has to contribute 12% of his basic salary each month, towards his EPF account. An equal amount is contributed by the employer. Only 3.67% of employer contribution goes into the EPF account. The remaining 8.33% goes towards the EPS account.
2. Professional Tax
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3. Tax Deducted at Source
TDS or Tax Deducted at Source, has been introduced by the Government, to make sure you pay taxes. Every month, employer deducts a certain amount from your salary and pays it as tax on your behalf to the income tax department. The amount deducted is based on the salary of the employee. Be Wise, Get Rich.
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