BAJAJ BROKING
February 18, 2025
6 mins read
Gross salary means the total money earned by an employee from his employer. It is calculated by adding his basic salary to all the allowances and bonuses Read more...he receives from his employer.
While filing income tax returns, employees mention their gross salary. All deductions (including income tax) are made from gross salary. Hence, it is extremely important to understand the concept of gross salary to manage investments and taxes well. Read less
Did you know that it is a legal requirement that your employer sends you a salary slip with all the details of your salary on it including the various breakdowns and deductions? The good thing is that almost every employer will stand by this legally binding provision, which enables you to receive a salary slip that adheres to the salary slip format, at the end of the month, along with your salary.
A salary slip contains quite a few terms and breakdowns, so we will explore each one in more detail and understand what it all means.
There are quite a few inclusions in a salary slip that every employee ought to know about. Below is a list of all of them and what they mean.
CTC
CTC is an abbreviation of ‘Cost to Company’. The CTC is the amount of money an employer spends on an employee. This, however, is not the amount that will be credited to your bank account. A percentage of the CTC is deducted for taxation purposes and some might go into a PF to help with long-term savings. The CTC is of more relevance to an employer than an employee. CTC can be quite a useful tool, however, if and when you are looking to switch jobs or are entering the job market.
Basic Salary
The basic salary component is an important one for employees. Basic salary is taxable by the income tax department and is taken into consideration when the IT department has to decide whether you fall into a specific tax bracket.
The basic salary is also not everything you might receive monthly in your bank account. This is mostly because employers or companies want to reduce their employees’ tax liabilities due to which they keep the basic salary purposely low. However, to offset this reduced salary amount, companies or employers might also include allowances or other provisions that are non-taxable in nature.
House Rent Allowance
House Rent Allowance or HRA, is a non-taxable component to a certain extent, but will only apply if an employee is paying rent. The IT department recognizes 4 cities; Mumbai, Delhi, Chennai and Kolkata as metros, enabling employees residing and paying rent in these cities to receive 50% of their salaries as HRA. For employees residing in non-metro cities and paying rent, 40% salary is paid as HRA.
Here’s a look at what percentage of your HRA might be taxable. Of the list below, the tax is usually calculated on the lowest amount:
HRA received from an employer
The difference between the annual rent and 10% of your basic salary and dearness allowance combined. This is only true if the dearness allowance is paid by the company or employer
50% of basic salary + dearness allowance when the dearness allowance is paid by the employer. This is in the case of employees residing in metro cities.
40% of basic salary + dearness allowance when the dearness allowance is paid by the employer. This is WRT employees residing in non-metro cities.
Conveyance Allowance
The conveyance allowance is a non-taxable amount and is paid to the employee to facilitate an employee's travel to and from work. How much you spend from the tax-exempt amount will depend on how an employee chooses to travel, an amount that is usually fixed by the government. No proof needs to be provided to an employer to claim conveyance allowance or to avoid any potential taxes on it.
Medical Allowance
One of the best ways to save on tax is to claim your medical allowance against any medical bills that you might have. This includes all your medical expenses and those of your dependents like parents or children. In case you don’t have medical expenses, the medical allowance becomes a part of your salary making it taxable.
Gross Salary:
The gross salary is a total of all the components listed above. The gross salary is one of the main components a lender will take into account when they have to decide whether they should sanction you a loan if you ever consider applying for one.
Suggested H2 - What are the Components of a Pay Slip? (add content in listicle format)
The salary slip or pay slip is a very important component of your career. There are several reasons why it is important to keep all our salary slips safe. Listed below are some of the main reasons.
Salary slips are a crucial proof of your employment. They come in handy when you are applying for a job, visa or even a new course.
Salary slips are also very important in helping you determine your tax liability and are an important component in filing an ITR.
If you ever want to apply for a loan, salary slips will help provide proof of your creditworthiness.
Since you have proof of your salary, you can use the slips to negotiate higher salaries when applying for a job.
Salary slips also come in handy if and when you are looking to opt for government subsidies.
Apart from the inclusions listed on a salary slip, certain deductions are also listed on it. Here are more details about them:
Professional tax
The professional tax payable will depend on the income you are earning and the state or UT you are living in. The amount can range anywhere from ₹200 to ₹2,500.
Employee Provident Fund
EPF or Employee Provident Fund is the amount that this mentioned in your salary slip and is deducted from your salary to fund an EPF which is a government savings scheme. A similar amount is contributed by your employer as well into your EPF. This is included in your CTC. The main purpose of an EPF is to provide you with a security blanket during your retirement. This is why the funds from your EPF account can only be withdrawn after your retirement. In special cases like medical emergencies, children’s education or marriage and even a house purchase, particle withdrawals are allowed.
Tax Deducted at Source
The TDS is paid by your employer to the government.
Understanding the intricacies of your salary slip is important as it helps you navigate through various aspects of your life better. By knowing the inclusions and the deductions in your salary slip, you can negotiate your way into better jobs, pay off your medical bills and even find a good house to rent.
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Share this article: 
A salary slip has all the details of your salary on it including the various breakdowns and deductions. A salary slip is important as it is proof of your employment, helps you determine your tax liability and helps you get loans faster.
A salary slip includes your CTC, your basic salary, the HRA or house rent allowance, the conveyance allowance and the medical allowance.
The deductions listed on an employee’s salary slip are the funds that an employer withholds from an employee each month like TDS or EPF charges.
If there are any discrepancies in the salary slip, bringing it to your employer’s notice will help correct it in the next pay cycle
It is best to keep salary slips for as long as you can as it is a record of all the jobs you have had.
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