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 ₹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.
In conclusion, understanding the components of a salary slip, such as earnings and deductions, is essential for salaried individuals. A salary slip provides a comprehensive breakdown of one's salary, including various allowances and benefits. Deductions, including Professional Tax, Tax Deducted at Source (TDS), and Employees' Provident Fund (EPF), are mandatory contributions that employers make on behalf of employees. Being aware of these deductions helps individuals comprehend their pay structure and ensures compliance with tax and retirement savings schemes. Therefore, familiarity with the elements of a salary slip empowers individuals to manage their finances more effectively.
To get the most out of your money, you should consider switching to a salary account on Fi. Here you can earn up to ₹30,000 in benefits a year and more.
The two types of payroll deductions are mandatory deductions, which include taxes and social security contributions, and voluntary deductions, which are optional and can include items like retirement savings or health insurance premiums.
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.
