Appraisals on the way? Here’s how to read your salary slip

Srividhya Iyer

Mumbai, April 30: With the end of the financial year, many companies and organisations conduct the annual appraisal process of their employees’ performance. A good performance could mean that the employee could be rewarded with a bonus, an increment in their salary or even a promotion. This would reflect in the employees’ salary slip received at the end of the month, However, reading one’s salary slip correctly, is crucial to identifying where the increased amount of money has been added and if any additional tax would be applicable on the same.

When companies release the appraisal letter, the amount that reflects first is the Cost To Company or CTC. This could be a large amount that does not usually match the salary credited into your salary account. This is largely because the CTC includes the net amount of money that the company pays for the benefit of the employ. This may entail benefits such as contribution to the EPF, deductibles paid etc. Usually, an employees’ salary is divided into two parts; earning, including exemptions, and deductions.


The earnings component of the salary slip includes the net amount that the employee is assured of obtains except for the taxation applicable. It mainly includes the basic salary along with a slew of allowances. However, the basic salary compounds to only 35-45 per cent of the net salary received and is completely taxable. The rest of the salary is mainly composed of some or all of the following key allowances:

  1.  House Rent Allowance: This is the allowance that a member of an organisation is paid to meet his or her housing needs. While it is labelled as House Rent Allowance, it is extended to all employees, whether or not they own their property or rent it. The HRA amounts to approximately 45 per cent of the basic pay and comes with some tax exemptions. However, it can vary depending on whether the city of residence is a metro or a non-metro.
  2. Leave Travel Allowance (LTA): The LTA is the sum that is paid to employees so as to cover their expenses while travelling. Employees can usually opt for the LTA on a monthly or an annual basis. Tax exemption is applicable, provided the employee submits proof of travel.
  3. Medical Allowance: Apart from any insurance taken in the name of an employee, companies also include a certain medical allowance as a component of the salary. This is meant to cover any medical expenses the employee may incur and is exempt from taxation for sums up to RS 15,000 per year. However, proper proof of the expenditure is required.
  4.  Education Allowance: Employees are usually paid a fixed amount as education allowance, to cover their children’s school tuition. This sum is however, taxable.
  5. Conveyance Allowance: Conveyance allowance is paid to employees to travel to and from home to their office locations. The amount is usually not taxable. The limit to the exemption is Rs 1,600.

There could be a variety of other allowances that an employee could receive, which vary from one organisation to another. While some of them might be deductible others could be exempt up to a certain limit.

RBI Salary Slip

[Sample salary slip of a bank employee (Source:]


While the earnings component of an employees’ salary adds to the in hand amount that he or she may receive, it could be largely be diminished by the sum of money that is deducted. This includes the company’s, as well as, the employee’s contribution to the statutory provident fund, the income tax, professional tax and other components liable to taxation. However, these are the two major sources of deductions:

  1. Professional tax: This is the tax charged to employees of large organisations and is levied by the state. It can vary from one state to another. The tax is a meagre amount and usually amounts to just a couple of hundred rupees. However, some states in India might not be charging the tax at all.
  2. Income tax: This is the tax charged by the union government on the slaries of all employees. There are various slabs to the income tax and the percentage of taxation varies depending on which slab of income an employees salary falls under. Any person earning above Rs 2.5 lakh per year is liable to pay the income tax.

While these are the most important components of a salary slip, it could also include various other aspects such as perks, exemptions and rebates. In case of any confusion, approaching an organisation’s human resource or finance team would be highly beneficial.