How Salary Slip is Prepared ????
Understand CTC and Salary Break up
The Cost to Company refers to the total expenditure a company would have to incur to
employ you.
Components of CTC
i - Fixed Salary
ii - Basic Salary
iii - Dearness Allowance
iv - House Rent Allowance
Detailed Salary
Monthly salary
Yearly Salary
Components Of Salary
Basic salary
i. The Basic component is the primary component and the core of the salary
structure.
ii. It is fully Taxable.
iii. It is as per Minimum Wages Act.
iv. It is usually the largest component of the CTC making up for 40-45% of the total
CTC.
v. Components like Provident Fund, ESIC and Gratuity are dependent on it.
Dearness Allowance
Dearness Allowance (DA) was introduced as part of the salary as a means to
reduce the burden of inflation on salaried employees.
It is fully taxable.
Amountable as per Minimum Wages Act.
This amount is usually set to about 5% of the total CTC.
Components such as PF and ESIC are dependent on it
House Rent Allowance
HRA is a component that employees can leverage if they are living in rented
accommodations.
It varies depending upon the state.
50% of Basic + DA if Metro
40% of Basic + DA if non metro
Total Rent – 10% of Basic
Conveyance
The conveyance component of the salary structure is paid to employees for
their travel expenses between their homes and workplaces.
It’s also important to note that this component is only tax deductible if an
organisation does not have its own means of transport for employees.
The maximum amount that is tax deductible under this component is Rs. 1,600
a year or Rs. 19,200 a year
Other Allowances
Medical Allowance
i. Medical allowance is paid as a reimbursement for medical expenses borne
by employees.
ii. This amount is tax deductible up to Rs. 15,000 a year or Rs. 1,250 every
month.
iii. In order to claim tax benefits under this component, employees need to
submit proof of their medical expenses.
Leave Travel Allowance(LTA)
i. Leave travel allowance (LTA) remunerates employees for their travel
within the country.
ii. An employee can claim tax benefits for the fare expenses paid for
his/her family when they take a holiday
Child Education Allowance
i. This component is paid out towards tuition fees of employees’ children and is tax
deductible up to Rs. 100 every month for a maximum of two children.
ii. this amount is usually set to not more than Rs. 2,400 a year for an employee.
Special Allowance
i. Special allowance is the balancing component of the salary structure.
ii. It is usually used by organisation as the leftover of the CTC when the rest of the
components have been paid out.
Deductions
Deductions are elements of the salary that are part of the CTC but are
deducted from the in-hand salary that employees receive.
Provident Fund
Provident Fund (PF) is calculated at 12% of Basic + DA + Special Allowance.
If an employee’s Basic + DA + Special Allowance are less than Rs. 15,000 then it is
mandatory for Provident Fund to be deducted.
Other employees can opt out by filling form 11 or can choose to have PF deducted on
the ceiling of Rs. 15,000 which would be Rs. 1,800 monthly.
Employees State Insurance Corporation
(ESIC)
Deductions towards ESIC are mandatory for employees whose gross salary is not more
than Rs. 15,000.
It is only applicable in companies where there are 10 or more employees within the Rs.
15,000 gross salary bracket.
Employees have to make a contribution of 1.75% of the gross salary and employers
have to make a contribution of 4.75% of the gross salary.
Professional Tax
Professional tax is the tax levied by Governments of certain states on salaried
employees.
The states where professional tax is applicable are Karnataka, Bihar, West
Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam,
Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim.
Other deductions
Leave deductions
Security deposit
Interest