Salary
How to Read Your Indian Salary Slip: Every Component Explained
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Your Indian salary slip has two sections: Earnings and Deductions. Here's a complete breakdown of every line item you're likely to see.
Earnings (Credits)
| Component | What It Is | Taxable? | Typical % |
|---|---|---|---|
| Basic Salary | Core salary component. All other components are calculated as % of basic. | Yes — fully taxable | 40–50% of gross |
| HRA (House Rent Allowance) | Allowance for housing expenses. Exempt from tax if you pay rent (old regime only). | Partially exempt (old regime) | 40–50% of basic |
| Special Allowance | Balancing component — residual after all other components. Fully taxable. | Yes — fully taxable | Varies |
| Medical Allowance | For medical expenses. Fully taxable (the old ₹15,000 exemption was removed). | Yes — fully taxable | ₹1,000–2,000/mo |
| LTA (Leave Travel Allowance) | For domestic travel during leave. Tax-exempt for 2 journeys in a 4-year block (old regime). | Partially exempt (old regime) | ₹1,000–5,000/mo |
| Transport Allowance | For commuting. Standard amount: ₹1,600/month (exempt only for disabled employees now). | Fully taxable | ₹1,600/mo |
| Phone/Internet Allowance | For business communication. Can be exempt if actual expenses are documented. | Exempt up to actual use | ₹1,000–2,000/mo |
| Variable Pay / Performance Bonus | Performance-linked pay. May be paid monthly, quarterly, or annually. | Yes — fully taxable | 0–30% of CTC |
Deductions (Debits)
| Component | What It Is | Your Rate | Notes |
|---|---|---|---|
| Employee PF (EPF) | Provident Fund contribution. Goes into your EPF account for retirement. | 12% of basic (max ₹1,800/mo) | Employer also contributes 12% |
| TDS (Tax Deducted at Source) | Monthly income tax advance deduction based on estimated annual tax liability. | Varies by salary and regime | Reconciled in Form 16 |
| Professional Tax (PT) | State government tax on employment. Only in some states. | ₹200–250/month | Zero in Delhi, UP, Rajasthan |
| ESI | Employee State Insurance. Health insurance scheme by government. | 0.75% of gross | Only if salary ≤ ₹21,000/month |
| Group Insurance | Company group life or health insurance premium deducted from salary. | Varies | Often included in CTC |
| Notice Pay Recovery | Deducted if leaving without serving full notice period. | Varies | Appears in F&F settlement |
Understanding Your Net Pay Formula
Net Pay = (Basic + HRA + Special Allowance + All Other Earnings) − (EPF + TDS + PT + Other Deductions)
Common Misconceptions
- "HRA is tax-free" — Only partly. HRA exemption has a formula (min of 3 conditions). And it's ONLY available in the old tax regime.
- "Medical allowance is tax-free up to ₹15,000" — This exemption was removed in Budget 2018. Medical allowance is now fully taxable.
- "Special allowance has some tax benefit" — No. Special allowance is 100% taxable as salary income.
FAQs
HRA exemption is not shown on the payslip — it's a deduction when calculating your taxable income for TDS purposes. Your employer reduces the TDS amount to account for HRA exemption if you've submitted rent receipts (Form 12BB).
Form 16 is a TDS certificate issued by your employer after year-end (by June 15). It shows your total salary, all deductions/exemptions claimed, TDS deducted, and final tax liability. It's used to verify your ITR and claim refunds.