How to read your salary slip: what every component means and what to check each month
Basic, HRA, special allowance, LTA, EPF, TDS, professional tax — your payslip has 10+ components and the gap between CTC and in-hand can be ₹20,000 or more. This guide decodes every line with a worked example for Rahul at ₹83,200 gross, and shows five things worth verifying every month.
All figures and facts in this article are sourced directly from primary government and regulatory publications — including the Reserve Bank of India, SEBI, EPFO, the Income Tax Department, PFRDA, and IRDAI — and verified before publication. No claim is published from a single source without corroboration.
For informational purposes only. Salary components and their tax treatment depend on your employer's structure and the applicable tax regime. Verify your specific payslip items with your HR team.
Your payslip arrives every month. Most salaried employees look at two numbers: the gross salary and the in-hand amount. The gap between them — sometimes ₹10,000, sometimes ₹40,000 — is filled with components that affect your taxes, retirement savings, and statutory entitlements. Understanding each line matters.
The structure of a salary slip
A salary slip has two sections: earnings (what you are paid) and deductions (what is taken out before you receive the rest). The difference is your net pay (in-hand salary).
Earnings − Deductions = Net pay (in-hand)
Earnings: the components on the credit side
1. Basic Salary
The foundational component. Set as a percentage of gross CTC — typically 30–50% for private-sector employees. Important because EPF contributions, HRA exemption, and gratuity are all calculated as a percentage of basic salary. A higher basic means more PF, potentially more gratuity, but more TDS in early years.
2. Dearness Allowance (DA)
Historically a cost-of-living adjustment, DA is significant in government and some public-sector jobs. Most private-sector companies pay zero DA. If shown, it adds directly to taxable income (no exemption).
3. House Rent Allowance (HRA)
Paid to offset accommodation costs. The portion exempt from tax is calculated using the three-condition formula (see Chapter 1 of this series). Only available under the old tax regime. If you live in your own home or do not pay rent, HRA is fully taxable.
4. Special Allowance / Flexi Pay
A catch-all component used to fill the gap between basic + named components and gross CTC. Fully taxable — no exemption applies. This is often the largest single component for private-sector employees with low basic structures.
5. Leave Travel Allowance (LTA)
An allowance for travel expenses during leave. Tax-exempt for up to 2 trips within India in a block of 4 calendar years, subject to actual travel evidence. If you do not claim it (no travel, no receipts submitted), LTA is fully taxable.
6. Medical / Food Allowance
If structured as meal vouchers (Sodexo, Pluxee): up to ₹50/meal, 2 meals/working day exempt from tax (~₹26,400/year). If paid as a fixed cash component without vouchers: fully taxable.
7. Conveyance / Transport Allowance
Standard transport allowance is fully taxable from FY 2018-19 onwards (the ₹1,600/month exemption was withdrawn when the standard deduction was introduced). Any amount shown here is taxable.
8. Performance Bonus / Variable Pay
Paid quarterly, half-yearly, or annually based on performance. Fully taxable in the month received. Not included in basic salary for EPF or gratuity calculation.
9. Arrears
Any salary differential from a revision paid retrospectively. Fully taxable in the year received. If the arrears relate to a prior year, you can claim relief under Section 89(1) in your ITR to reduce the tax burden.
Deductions: what comes out before in-hand
1. Employee Provident Fund (EPF)
12% of basic + DA, deducted monthly and deposited to your EPF account. This is your own savings — it earns 8.25% (FY 2025-26) and qualifies for 80C under the old regime. Mandatory for employees in covered establishments.
2. Employees' State Insurance (ESI)
0.75% of gross salary if your gross salary is ₹21,000 or below per month. Provides health and disability coverage. If your salary exceeds ₹21,000/month, ESI does not apply.
3. Income Tax Deducted at Source (TDS)
Your employer estimates your annual tax liability and divides it across the remaining months of the financial year. This is not a fixed amount — it adjusts when you submit investment declarations (Form 12BB) and when your salary changes.
4. Professional Tax
A state-level tax levied on employment income. The rate and structure vary by state. Maharashtra levies ₹200/month (₹300 in February), capped at ₹2,500/year. Karnataka levies up to ₹200/month. Some states do not levy professional tax at all. It is deductible from your taxable income under Section 16(iii) of the Income Tax Act.
5. Leave Without Pay (LWP)
If you took unpaid leave, the corresponding salary is deducted. Shown as a deduction or as a reduced earning depending on the payroll system.
6. Loan repayments / salary advances
If you have an employer-provided loan or advance, the monthly repayment appears here.
A sample payslip decoded
Rahul works at a mid-size IT company in Bengaluru. Basic: ₹40,000. Here is his payslip:
Earnings:
| Component | Amount | Taxable? |
| Basic | ₹40,000 | Yes |
| HRA | ₹16,000 | Partial (depends on rent paid) |
| Special allowance | ₹22,000 | Yes |
| LTA | ₹3,000 | Exempt if claimed with travel |
| Meal voucher | ₹2,200 | Exempt (₹50/meal × 2 × 22 days) |
| Gross earnings | ₹83,200 |
Deductions:
| Component | Amount |
| EPF (12% of basic) | ₹4,800 |
| Professional tax | ₹200 |
| TDS | ₹6,500 |
| Total deductions | ₹11,500 |
Net pay (in-hand): ₹71,700
Rahul's CTC includes the employer's EPF contribution (₹2,400 as 3.67% of basic → EPF, plus ₹3,320 as 8.33% → EPS) and any other employer costs. The CTC shown in his offer letter would be approximately ₹83,200 × 12 + employer PF + gratuity component = approximately ₹11.5–12L/year.
What to check on your payslip each month
◇ Quick check — five things worth verifying:
The difference between CTC, gross, and net
- CTC (Cost to Company): Everything your employer spends — your salary components + employer PF + gratuity provision + EDLI + any other benefits. Your CTC is not what you receive.
- Gross salary: All your earnings before deductions. This is what appears on your payslip earnings side.
- Net salary (in-hand): Gross minus all deductions — EPF, ESI, TDS, professional tax. This is what hits your bank account.
The gap between CTC and gross typically includes employer PF and gratuity provision. The gap between gross and net is your statutory and tax deductions.
Bottom line
- Basic salary is the root of EPF, HRA exemption, and gratuity — it matters beyond just being one number on your slip
- Special allowance (flexi/filler) is fully taxable; HRA has partial exemption under the old regime; meal vouchers and LTA have specific exemption rules
- EPF at 12% of basic is your own savings, not a cost — it earns 8.25% and accumulates for retirement
- TDS is estimated tax deducted monthly — verify it is roughly correct against your expected annual tax liability
- Professional tax is state-level, capped, and deductible from taxable income
Sources: EPF contribution rates, EPFO · Professional tax, state government portals] · [Section 16, Income Tax Act
Last verified: June 2026. Payslip structures vary by employer. Tax treatment depends on the applicable regime and individual deduction submissions.
Content on Ek Crore is for educational purposes only. Nothing here is financial advice. Always consult a SEBI-registered advisor, CA, or qualified professional before making investment or tax decisions.