If you’re a salaried individual, you’ve definitely come across terms taxes and deductions on your salary slip. Knowing what these components represent can help you better understand your pay structure.
Also known as a salary slip, the payslip is an important document that salaried individuals receive from their employers each month. The document comprises a host of information including a detailed breakdown of the salary that they receive.
Some of the different components of a salary slip include earnings, which are usually classified into - Basic Salary, Dearness Allowance (DA), House Rent Allowance (HRA), Conveyance Allowance, Transport Allowance (TA), Medical Allowance, and Special Allowance, among other things.
There are three primary deductions that employers are mandatorily required to make - Professional Tax, Tax Deducted at Source (TDS), and Employees’ Provident Fund (EPF).
Certain states in India levy a tax on working professionals. This tax is widely referred to as Professional Tax and is a major source of revenue for state governments. Depending on factors like your salary and the state where you’re working, the amount of Professional Tax levied may vary. That said, there’s a maximum cap on the amount that can be charged by states as Professional Tax, which is set at Rs. 2,500 per annum. The list of states that levy this tax is as follows -
cases where an employee’s salary exceeds the basic exemption limit of Rs. 2.5 lakhs per annum, the employer is duty-bound to deduct a portion of their salary. This deduction that the employer makes is what is termed as Tax Deducted at Source or TDS. The percentage of TDS that needs to be deducted is determined by the salary of an employee and the income tax slab rate they come under and can range from 10% to 30%.
The Employees’ Provident Fund, also known as EPF, is a government-backed retirement savings scheme. According to this scheme, both the employer and the employee are required to contribute 12% of the basic salary plus the Dearness Allowance (DA) towards the Provident Fund each month. The employer deducts the employee’s contribution from their salary and remits it to the EPF authorities along with their contribution.
Now that you’re aware of the various components of a salary slip related to deductions, you should be in a better position when it comes to understanding your pay structure. Your salary slip plays an important role when it comes to switching jobs, income tax filing, and availing credit facilities.
Payroll deductions can be broadly classified into two based on their nature - taxes, and benefits. Two of the most common tax deductions are Professional Tax and Tax Deducted at Source (TDS). The employer deducts these amounts from your salary and deposits them with the tax authorities on your behalf.
The most common benefit deduction that employers make goes toward your Employees’ Provident Fund (EPF) account. The amount within this account can be accessed by you upon your retirement or prematurely in accordance with the withdrawal rules.
The other deductions in a salary slip represent the various deductions that an employer makes from the salary of an employee each month. The amount remaining after accounting for all the deductions is paid out to the employee. These deductions can be broadly categorized into two - taxes and benefits and include Professional Tax, Tax Deducted at Source and Employees’ Provident Fund.
