Monday, May 30, 2016

Everything You Need to Know About Your Salary Slip

 
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Every month, your finance department will send you a salary slip once the gets paid out. For most people, the importance of salary slip is only when they apply for a loan or a new credit card. Otherwise, the confusing terms and figures seem like a puzzle you don’t want to solve.
But here’s why you might want to understand your salary slip better.
    • Choose smartly from competing offers when you are looking to switch jobs
    • Optimize liability by making full use of the deductions available
    • Understand what percentage of your salary is forced savings (EPF, ESI etc.)
Salary-Slip

The income part of your salary slip

#1: Basic Salary
It’s the most important component of your salary and generally comprises 35-50 % of your total salary. Most of the other components are structured around it. Bigger the basic salary, the more tax you need to pay.

Tax Implications: 100% taxable
Adds to in-hand? Yes

# 2. House Rent Allowance:
It’s an allowance to pay your house rent. Normally, HRA is 40-50 % of the basic, based on your location (metro or non-metro).
Tax Implications: You get based on whichever of the following is lower
  • 40% of your basic pay
  • Actual rent minus 10 % of basic
  • HRA component specified on your salary slip
Adds to in-hand? Generally Yes

# 3. Conveyance Allowance:

It’s paid by the company to take care of your official commuting needs. The amount varies depending on your job profile. For example, sales executives who have to travel frequently get significantly higher conveyance allowance.

Tax Implications: Rs 1600 per month or the conveyance allowance component in your salary slip, whichever is lower, is exempted from tax.

Adds to in-hand? Yes, depending on how much you actually spend.

# 4. Leave Travel Allowance:
It’s given by employers to cover the cost of employee travel while on leave. It includes travel expenses of your immediate family members as well.

Tax Implications: Proof of journey required to avail deduction subject to certain limits. Any expenses incurred during the trip apart from travel does not count towards your LTA tax exemption. The exemption is also applicable only for 2 journeys undertaken in a block of 4 calendar years.

Adds to in-hand? No.

# 5. Medical Allowance:
It is given by employers to cover any medical expenses incurred during the period of . It is also generally a reimbursed expense and thus subject to providing proof of expense.

Tax Implications: The allowance is exempt up to 15,000 per annum subject to proof of expenses such as medical bills.

Adds to in-hand? Yes. If you fail to provide the proof, you still receive the amount, but will be fully taxed.

# 6.   and Special Allowance:
It is given to reward or encourage employee performance and varies with performance or company guidelines.

Tax Implication: 100% Taxable

Adds to in-hand? Yes. It can be variable and therefore, difficult to assess as part of your in-hand.

Other Allowances: There are quite a few other kinds of allowances based on the industry or the company. Most such allowances are fully taxable. They might or might not add to your in-hand salary based on the conditions they are subject to.
Make sure you talk to the HR and get a clear understanding of the in-hand and tax implications of your salary components.

The deduction part of your salary slip

# 1. :
PF is typically 12% of your basic salary which is put into a government controlled body, Employees’ Provident Fund Organisation. Your contribution is typically matched by the company subject to certain maximum amount, defined as per the company .  You can also choose to opt out from the PF scheme.

How to lower this deduction? You can choose to opt out of the PF scheme. In case you opt out, make sure you invest it regularly in better options like equity mutual funds that gives you a higher return. If you are unsure of investing the money, it’s best to stay invested in PF.

# 2. Professional Tax:
This is payable only in the following states-Karnataka, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamilnadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Orissa, Tripura, Jharkhand, Bihar, and Madhya Pradesh. It normally amounts to just a few hundred rupees each month and is subject to your gross tax slab.

How to lower this deduction? This deduction cannot be lowered.
# 3. Tax deductible at source:

This amount, which is decided based on your overall tax slab, is deducted on behalf of the income-tax department by your employer.

How to lower this deduction? You can reduce this burden by investing in tax savings instruments under Section 80 C or other sections under the IT act.

Things to keep in mind when comparing salary slips in offers:

# 1. Your basic salary is critical as most of your allowances will be based on that figure. This is your real salary or primary hiring cost.

# 2. Look for special allowances and check whether they are performance or event based.

#3. Do not focus only on the in-hand salary. Look at the other benefits the company provides (health insurance, accident insurance, free food, bus transport, better career growth) which might outmatch a higher in-hand salary offer from some other company

This article was first seen on Scripbox

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