UNDERSTANDING SALARY-SLIP

 A lot of people do not properly understand the components of salary they are being offered in their job. Let us understand them:

Suppose your company offered you a package of 12 lakhs per annum.

The following main components will be part of your salary or your salary slip:

1) Basic salary

2) House rent allowance

3) Leave travel allowance.

4) Employee Provident fund

5) Gratuity.

6) Professional tax.

7) Income tax deductions

8) Other variables like Overtime, transport allowance, night shift allowance, bonus, meal allowance etc.

Let us take an example your package is 12 lakhs per annum. This does not mean you will get 1 lakh every month. This 1 lakh will get divided into these components. Let us understand in detail what these components mean:

1) Basic salary- This will be the basic salary that you will get straight every year. Let us suppose it is 50,000. This you will get every month.

2) House rent allowance- This also you will get every month. Let us suppose this will be 15,000 but this will be paid to you as a house rent allowance to save tax. So this will be beneficial for you as the house rent allowance of the salary component is tax-free.

3) Leave travel allowance - This also you will get every month. Let us suppose this will be 10,000 but this will be paid to you as a leave allowance to save tax. So this will be beneficial for you as the travel allowance of the salary component is also tax-free or very low taxed.

4) Employee Provident fund- This is a part that you will not get in your salary. This will be a deduction from your package and will be transferred to your EPF account and not your salary account. Suppose this is 3000 rs per month that will be deducted from ypur package of 1 lakh per month. So this 3000 and exact equal amount of 3000 will be added by the company from their side and total 6000 will be sent to your EPF account. This total 6000 rs per month is part of your 12 lakh annual package.  The rule is that EPF is considered a retirement fund. It is created by adding 2 components:

a) Employee contribution to provident fund. It is around 12% of your base salary. So suppose your base salary was 50,000. So EPF deduction will be around 6000 monthly.  It will go to your EPF account every month and not to your salary account.

b) Company contribution to provident fund. It is eqaul to the EPF amount deducted from your part.So suppose EPF deduction will be around 6000 monthly.  So company will also add 6000 rs from their side and total 12,000 rs per month will go to your EPF account. This 12,000 per month EPF contribution is already a part of your 12 lakh package and the company contribution of 6000 per month is not beyond your package.

5) Gratuity: It is the amount that a company pays to you after you complete 5 years or more in that company. It will ONLY be paid after the completion of 5 years. Ideally it is paid as a Thank you amount from the company for expressing gratitude that you worked for them for 5 years or above. But a lot of companies add this to your salary package. Remember, if this component is part of your package, it will come only if you complete 5 years. Not before. If you leave the company before 5 years, it will not be paid.

6) Professional tax- a small negligible amount is deducted as professional tax every month, around 200 rs.

7) Income tax deductions- deductions every month as per Income tax.

8) Other variables like Overtime, transport allowance, night shift allowance, bonus, meal allowance, etc.- these are paid only if you take these services and are NOT a compulsory part of your salary. These payments are VARIABLES and not fixed salary components. These might be paid or might not be paid.

So suppose your package was 12 lakhs per year which looks as 1 lakh per month. But every month this is how your salary will look like.

1) Basic- 50,000.

2) HRA- 15,000

3) LTA- 10,000.

4) EPF Deduction-  12,000

5) Gratuity deduction if the company added gratuity as part of the package- They will deduct it every month but pay only if you complete 5 years. If they did not add gratuity as part of the package, then this will not get deducted. Ask your HR.

6) Professional tax Deduction- 200.

7) Income tax Deduction- as per tax rule.

8) Other variables payment like Overtime, transport allowance, night shift allowance, bonus, meal allowance, etc.

There might be some differences in the components of every company and their package, salary slips, etc. but these are the most common parts of most companies and their package offers.