Decoding Your Pay Slip

December 14, 2010   ·   6 Comments

In the last Lesson you learnt About About Income Tax Slabs in India. Now we shall Understand Pay Slip. The First Foremost Step for saving Income Tax is to Understand Your Salary .

This is how a General Salary Pay Slip Looks Like

Let us see what’s these Terms are:

UR CTC offered could be higher. but inhand salary may be lower. It is in hand salary that one is interested in. There r 8 most important indicators that r commonly found in Pay Slip.

1) Basic Salary

It’s the monthly base amount u r entitled to. This is biggest part of your salary, typically 50-60 percent of your CTC. The basic tends to form a higher portion at junior levels. At senior levels, the proportion of basic goes down n variable incentives amount increases.

What’s Important?

Your Basic Determines the other components of your pay such as provident fund contribution, HRA(House Rent Allowance). Entitlement to loans by employees are linked to the basic. Figure out ur Basic in the Compensation Package that has been provided to you.

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2) Conveyance Allowance

This is paid to cover your work related Travel needs Upto 800 Rs. is exempt from tax every month acc to your designation.

What’s Important?

800 *12= 9600 Rs. from final Income tax is directly taken out. So your income tax decreases by quite a margin.

3) Performance Bonus

This is pay that is linked to the performance, often evaluated on the pre-determined targets. This comes to u as a lump sum at a certain time of year.

What’s Important?

While this adds to your income, it also increases your tax payout, During an economic boom,, as in the last few years, this tends to be at high end.

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4) Education Allowance

Rs. 100 per month per child is tax exempt for up to 2 children.

5) Loans for Employees

when you take a loan from the company, often at concessional rate, u need to repay a portion of it every month much like EMI’S of commercial loans. This gets deducted from the pay every month. The difference b/w the market interest rate n employer’s rate is taxable.

What’s Important?

It reduces your take home pay and also your ability to service other loans.

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6) Provident Fund

It is mandatory deduction of 12 percent of your basic every month by your employer, who makes a matching contribution. One gets 8.5 % of interest while saving in a PF.

What’s Important?

The contribution gets tax exempted directly. A person may increase his own contribution to 100% of his salary.

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7) House Rent Allowance

You compulsory entitled to a certain entitled to a certain sum of money under HRA subhead. This‘ll vary from 10-35% of your Basic.

The lowest of the following three amounts in exempted:
1) An amount equal to 50 per cent of basic, where residential house is situated at Mumbai, Kolkata, Delhi or Chennai and an amount equal to 40 per cent of salary, where residential house is situated at any other place.
2) House rent allowance received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year.
3) Rent paid minus 10 per cent of salary

What’s Important?

The amount of exemption in respect of house rent allowance received by an employee depends upon the following:

– Salary of the employee;
– House rent allowance;
– Rent paid; and
– The Place where house is taken on rent.

8) LTA Leave Travel Allowance

It is paid for travel undertaken by you & your family within the country whille on leave with tax breaks for a max. of two journeys in a block of four calendar years.

9) Medical Reimbursements

(On Submission of relevant bills) tax free up to 15,000 Rs.

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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  • Good morning guise

    MTECH COMPUTER

  • Rajesh

    Very Good Morning Jitendra…

  • Prataprth

    Its really very help full

  • Anonymous

    Thanks Prataprth..I am glad you find it useful.

  • Maria007

    Thanks bro. Its a simple and powerful brief.

  • rajsingla

    Your welcome Maria. The article brought some light on pay slip components to you.

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