Decoding Your Salary Slip

When you join a company, you are promised a cost to the company (CTC), and that usually is a handsome amount, but when the salary is credited into your account, the figure somehow looks much smaller and the only document where you can find the details is your monthly salary slip. However, it is not the easiest financial document to decode. Moreover, with the forthcoming implementation of the new Code of Wages in the current financial year, it has now become vital for both the employees and the HRs to understand the salary components properly as the salary structures are bound to change. So, here is a quick guide to know the benefits and  important components of the salary slip. 

Benefits of Salary Slip

  • Proof of employment

Payslips are legal proof of association with an organization. While applying to a university or visa, payslips verify employment and source of income.

  • Planning of income tax

Payslips contain components that are tax-deductible. Now only do they help in assessing how much tax is to be paid, but also assist in calculating tax returns and refunds.

  • Helps in borrowing

Credit cards and loans hinge on the creditworthiness of an individual. This where salary slips pitch in to establish the credit score. Financial institutions require payslips as they corroborate the credit or loan payment capability.

  • Salary negotiations

This is a no-brainer. Salary slips from the previous organization can be leveraged to negotiate better salary packages and allowances with potential employers.

CTC Vs Gross Vs Net Salary

CTC is the total cost a company incurs when hiring an employee. It includes all direct and indirect benefits such as HRA, PF, Gratuity, Transport, Food Allowance, Accommodation etc. 

Gross Salary is the amount paid before deduction of taxes or other deductions and is inclusive of bonuses, over-time pay, holiday pay, and other differentials.

Net salary, more commonly known as Take-Home Salary, is the income that the employee actually takes home once tax and other such deductions are made.

TDS Vs Income Tax

TDSIncome Tax
TDS is only an individual’s partial contribution to his total annual income.Income tax is paid on the annual income including income from property, capital gains, income from other sources etc.
Deducted by the payer and is remitted to the Government by the payer on behalf of the payee.To be paid by the individual directly.

Exemptions Vs Deductions

Exemptions are not included in your taxable income. One need not pay any tax for income coming from that source. They are provided on particular sources of income and not on the total income. For example, income from agriculture is exempted under tax.

Deductions remain clubbed with your income. They are those items which are taxable but because of the provisions of the act, their taxability has been reduced.Once the gross total income is calculated, the deductions are deducted to arrive at Net taxable income. On this income, tax slabs are applied to calculate the tax amount.

Want to understand all the components of salary and the correct break up with real examples?

We have made a detailed video on Decoding Your Salary Slip. Click here to watch the video.

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