Understanding salary slip heads

An investment in knowledge pays the best interest. --Benjamin Franklin

When the month has ended, when we are inundated with bills. What illuminates the path to relief? a paycheck slip!

Not everyone can comprehend everything on their pay stubs. Our pay stubs were once all Greek and Latin to us until we eventually looked them up online or asked a co-worker what each part of the pay stub contained. Let's avoid placing ourselves in the position of needing to ask someone at work or even seek for it online.

?Let's read the article below to better comprehend our pay stubs instead of doing that.

So, what precisely is a pay stub? An employee's earnings during a pay period are listed on a salary slip, together with any deductions that have been made from their compensation. Typically, an employer will give it to an employee in either a physical paper or an electronic format.

A salary slip might contain several different items. These may differ according on the company and the rules and legislation of the nation or area where the employee works. Let us examine the various parts of the attached salary slip.

?The top center of the salary slip indicates the month for which the salary is paid.

This sample company uses the salary cycle of the 22nd to 21st of the month.

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The top left side of the salary slip indicates various Employee details or Personal details that are very essential to track an employee's history. Be it employee code, department, designation, DOB, and DOJ. These parameters in my opinion are the most important ones as they can quickly help in establishing an understanding of the employee, and his/her career progression. DOJ specifically helps in knowing whether the employees can be trustworthy in the long run or not and at the same time how equipped he/she is in terms of knowledge and expertise based on their current designation (That indicates elevation in their career).

?On the right-side top column, we can see Location, Bank Name, Bank A/c No, cost center, PAN, PF no., EST No., and PF UAN. This information is required to prevent confusion over the employee whose name is on the salary slip.

Every pay slip is bifurcated under two columns:

a) Earnings

b) Deductions

a) EARNINGS

Basic: It is the employee's base pay, which comes before any further payments. It typically amounts to 30–50% of the total/gross salary/CTC that was provided to the applicant. The basic pay shown on the pay slip here is Rs. 12255.00, or 35.00% of the gross income, which is Rs. 36800. (Without incentives).

House Rent Allowance: It is a sum of money that an employer gives to a worker to assist in defraying the expense of renting a home or apartment. It provides tax advantages to employees for the amount they pay annually for housing or lodging. Salary earners who rent housing can apply for this exemption to lower their tax obligations entirely or partially. If an employee doesn’t live in a rented accommodation, this allowance is fully taxable.?HRA can be 40-50% of your basic salary depending upon the city you live in (metro, non-metro) whereas in this case, HRA is 60%.

As the work location is Delhi, usually HRA is 50% of the basic. Here the organization is offering the employee Rs.7868 as HRA which is 60% of basic (Rs.13113).

Other allowances: All allowances such as medical allowance, children's education allowance, and LTA are taxable or partially taxable. In the pay slip attached, the Payment of the other allowance is Rs. 13862(excluding arrears).

Medical Allowance: The amount an employer pays an employee for medical expenses during the term of employment.

Incentive: The amount that is kept by the organization to reward their employees for exceptional performance. Here the amount paid is Rs. 14453. The amount decided to pay is not done on a random basis but it is a specific percentage of total amount disbursed which is decided to be paid on basis of Location, Cadre or % of target/performance, etc.

LTA?(Leave Travel Allowance): It includes the travel expenses of the employee's immediate family members. Under LTA, the employees can claim the fare tickets as an exemption for traveling anywhere in India once in two years. Here, The amount availed is Rs. 3279.

Statutory Bonus Allowance: Statutory Bonus in India is paid as per the Payment of Bonus act(1965). Bonus is essentially deferred earnings, and some companies choose to pay it out in advance. This is what I think is reflected in your payslip. The bonus rate is between 8% and 20% based on the ‘available surplus’ as mentioned in the act. However, the standard bonus is 8.33% of the basic. Here the statutory bonus received by the employee is Rs.1957.00. which is 15% of basic.

The gross earnings?of the employee here are Rs.62431.

The next column is

b) Deductions

Income Tax: The annual income is Rs, 593908 which is less than 6 lakhs. Hence taxable liability is 5% of the remaining amount after deducting Rs.250000. Total taxable liability is Rs. 17141 which makes a tax payment per month of Rs.1538. Tax liability pending to be paid for the year Rs. 5976.

PF: The employee contributed 13.60% of his/her basic salary toward of account. 13.60% of Rs. 13113 is Rs. 1799.034 which can be rounded off to Rs. 1800.

Prof. Tax: It is usually around Rs 200 a month, with the maximum payable in a year being Rs.2,500.

?Salary Advance: There are certain instances when advance salary is paid to the employee which is deducted back in the next month. Reasons can be several for advance salary. Here, In this salary slip also an advance salary has been debited from the account of Rs.22624.

?After analyzing the components of the salary slips. Clarity on various CTC heads in terms of taxability and their relevance in understanding the subject of Compensation management can be clearly implemented practically. In a nutshell, This subject is something that will never get faded and will always keep on evolving with the ever-changing VUCA world.

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? Abhinav Jha