Most of the people forget to check how salary structure is distributed after getting the salary. Understanding the various components of the salary slip is really important because the breakup decided how much is your taxable income and what is your take-home income. The person can also know about how much money will he get he retires after work. It is important for you to check if the company is calculating the TDS well or not.
Let’s take you on a ride where we will make you understand various components of your salary slip. Your salary slip basically contains 2 sections. The first one being Earnings and second being deductions.
Talking about the first section, subsections include:
1) Basic salary: This is the most important component of your salary structure which contributes to the most of your salary. This is the fixed amount and will only vary when your salary increases. It is around 45%-5-% of your salary and it varies from organization to organization. Higher the basic salary, higher is the taxable amount.
2) HRA: House rental allowance (HRA) basically is the allowance that is given to pay employee’s house rent. It varies from location to location. If you are working in a metro city, your HRA will be more as compared to the non-metro city. To get the benefit of HRA, you need to provide rent agreement between your owner and yourself.
3) Conveyance allowance: This is the amount that the company pays for your to and fro travel from workplace to home and vice versa. Typically, it is INR1600 per month or the conveyance allowance component allowed in your salary, whichever is lower, is exempted from tax.
4) Special allowance: This allowance is linked to your performance rating and is taxable. After all the different components of a salary are allocated, the remaining sum of money which is left of annual CTC forms part of special allowance.
The second section i.e. deductions includes:
1) Professional tax: This tax is not applicable to all the states in India. This is only applicable to states like Karnataka and Maharashtra. It is basically under INR 500 per month for the employees living in these 2 states.
2) Provident Fund: Provident fund generally constitutes 12% of your basic salary which is funded by Employees’ Provident Fund Organization. Whatever your salary constitutes towards PF, the same is contributed by the organization. However, it has to be noticed that the contribution that company makes is a part of your own CTC that company offered you.
3) TDS: The amount deducted in this section is your taxable salary. This amount will be paid to Income tax department. You can of course lower the amount deducted towards TDS by investing into various schemes that are exempted under section 80c