Salary Structure in India

Salary brings us happiness because we all are very attached to the salary that we receive. Any major expenses in the month often happen in the first week after receiving the salary. The written proof of the salary that you receive is the salary slip or payslip. But many people are still confused in reading and understanding the same. This guide by Chaturvedi & Company helps you in understanding your salary structure.

The salary slip is the description of all the income earned, exemptions and deductions and the taxes that are cut from your salary. The values in the salary slip vary according to every person. The employer must issue the salary slip to the employee. If he fails to do so, the employee has a right to ask for the same. In case, you are planning to get a loan; salary slip is very important.

Computer Generated Salary Slip vs Manual Salary Slip
Initially, manually salary slips were issued, but it used to take a very long time in preparing them and distributing them. If the company is having a huge number of employees, it will take almost a week to distribute the salary slips. Nowadays, they have introduced computerised salary slips to reduce the complexity of the process. The salary slip is sent to the employee in his email. The employee can print it or use it as per his convenience. The salary slip has the official logo or stamp and signature of the authority issuing it.

Validity and Importance of a Payslip
Manual and computerised salary slip is a legal document and is valid while obtaining loans. Any manipulation in the details of the salary slip is treated as a criminal offence. Salary slip describes the monthly TDS cut from your salary and also describes the other tax cut from your salary. The salary slip allows a person to claim the services from the government which are free or highly subsidised as per the income of the employee. You have to issue salary slips to avail the bank credit, house mortgage, loans and other borrowings so that the lender can analyse the ability to repay the loans. If you are changing your job, the new employer will ask for your existing salary slip to decide your new salary.

The salary slip decides the ability to own a liquor permit in Gulf countries. Without the permit, you cannot buy liquor in those countries.

Components of Salary Structure
Components of salary structure are broadly divided into

– Income and Exemptions
– Deductions
– Personal details and leave information

Income and Exemptions
Income: It is mostly located on the left side of the salary slip. It includes the allowances, perquisites and other incomes or gains related to salary.

Basic Salary: Basic salary composes of 40 to 50 % of the salary received by the employee. It is used in deciding the house rent allowance, PF amount, accommodation perquisite and other such perquisites. It is fully taxable.

Dearness allowance: It is also a basic component of income. It is also used in deciding the house rent allowance, PF amount, accommodation perquisite and other such perquisites. Dearness allowance as basic salary is fully taxable.

Performance bonus: If the amount received by the employee for his performance is known as a performance bonus. It is fully taxable.

Commission: Certain percentage of the turnover of business is given to the employee for his contribution in increasing the sales. This amount is known as a commission. It is fully taxable, and it should be only in a certain percentage of the turnover.

Arrears: If any arrears of previous months are paid in that particular month, then that amount is also shown on the salary slip.

Overtime Compensation: If an employer monetarily compensates the overtime hours of the employee, the amount is also shown in the salary slip.

House Rent Allowance: The allowance given by the employer for paying the rent of his house is known as house rent allowance. An exemption is allowed on the house rent allowance. The amount exempted is least of the following:

– Actual HRA received
– Rent paid – 10% of salary( basic salary + dearness allowance)
– 50% of salary (basic salary + dearness allowance) for metros and 40% of salary ( basic salary + dearness allowance) for other than metros.

Leave Travel Allowance: Leave travel allowance repays the travel expenses incurred by the employee while travelling. It repays only economy class air tickets, 1st AC railway tickets, if travelled by road then the expenses would be the railway ticket to that destination and all the routes are shortest are direct. The place of travel should be located only in India. The employee can claim travel expenses of his spouse and children, or dependent parents and siblings.

Child Education Allowance: It is the allowance provided to the employee to bear the expenses of the education of his children. This allowance is of Rs 100 per child per month up to only two children. Therefore, the employee can get Rs 2400 annually as child education allowance

Hostel Expenditure allowance: It is the allowance provided to the employee to bear the expenses of the education of his children. This allowance is of Rs 300 per child per month up to only two children. Therefore, the employee can get Rs 7200 annually as hostel expenditure allowance.

City Compensatory allowance: If an employee has to relocate from his hometown to some other place mostly a metro city, or urban city, the employer may provide city compensatory allowance to the employee. It is also mentioned in the salary slip.

Meals: If meals are provided by the employer to the employee, it is known as meal allowance. The maximum amount of tax-free meals is Rs 50 per meal.

Special Allowances and Perquisites: Any other allowances given by the employer or any other perquisites like accommodation, motor car allowance etc. if paid to the employee will be mentioned in the salary slip.

These are located on the right side of the salary slip.

Provident Fund: It constitutes 12% of basic pay and dearness allowance. The contribution is made both by the employer and the employee. The contribution made by the employee is only mentioned in the salary slip.

Professional Tax: The state government levies tax on salaried individuals. The states which levy the professional tax are: Odisha, Tripura, Madhya Pradesh, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Karnataka, Bihar, West Bengal, Assam, Chhattisgarh, Kerala, Meghalaya, and Sikkim. It differs from state to state.

Tax deducted at source: The amount deducted as tax every month by the employer from the salary and which is submitted to the government by the employer.

Personal Details and Leave Information
It is usually at the start of the salary slip in the centre and has the record of leaves that an employee has taken in a month.

Foreign Payslip Format
The validity and importance of foreign salary slip are same as that of Indian local. These salary slips can be used for opening a bank account in a foreign bank. These salary slips can covert you residential status from resident to non-resident.

Methods to increase your take-home salary
Deduce the basic salary in different long-term benefits or allowances. Deduction in basic pay reduces the HRA, PF contribution etc.
Do not claim allowances which are fully taxable, include them in the tax-free or partially taxable benefits.
Note: Higher take-home salary increases the slab rates of the employer.

The salary slip is the most valid proof of the employment of an employee. It gives an overview of your salary structure and taxes paid by you on a monthly basis. Basic salary, allowances and benefits granted by the employer are some things to keep in mind while changing your employer

How can Chaturvedi & Company help you?
Your salary has several components which are either fully or partially free from tax, but you might fail to claim the tax benefits in the absence of proper knowledge and procedures. So, you should take help of tax experts for this job. Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. You can either use our intuitive tax filing platform to easily file your tax return or let our tax experts file it for you. We have a team of in-house tax experts who can accurately file your tax returns online while giving you maximum tax benefits.

2 thoughts on “Salary Structure in India”

  1. Very informative.
    How can tax can be saved on salary.
    Salary structure is predefined by organization, deduction is also standard on each month, however how can we get refund tax fr hidden clauses.

    1. Hello Mr. Vipul,
      There are various allowances which have different types of claims under Income Tax Act. It depends on the salary structure of the assessee.
      Contact our team on the details given on our website to get expert help.

Leave a Comment

Your email address will not be published. Required fields are marked *