Understanding your salary slip

Cost to company is what the employer spends on you in a year. It includes your gross salary, plus the employer's provident fund contribution, plus a gratuity provision, plus employer-paid insurance premiums, plus any variable pay or bonus that is conditional, plus sometimes notional items like a meal card allowance or a car lease.

Gross salary is the sum of your fixed monthly components before deductions — basic, HRA, and the various allowances.

In-hand is gross minus your own provident fund contribution, professional tax where your state levies it, TDS on income tax, and any voluntary deductions such as insurance premiums or loan repayments.

The two items that most often surprise people are the employer's PF contribution and the gratuity provision. Both are counted in CTC, neither reaches your account monthly, and the gratuity portion only becomes payable at all after five years of service. A CTC figure that includes a gratuity provision is counting money you may never receive.

Variable pay is the other. A CTC that includes a performance bonus assumes full payout, which is a target rather than an entitlement in most structures. Ask what the actual average payout has been.

When comparing offers, compare monthly in-hand and the fixed component separately from the variable, not CTC against CTC. Two identical CTCs can differ substantially in what actually arrives each month.

HRA is the component most worth understanding if you rent and use the old regime. The exemption is the least of three amounts: the actual HRA received, rent paid minus ten per cent of basic, and fifty per cent of basic in the four metro cities or forty per cent elsewhere. You need rent receipts, and your landlord's PAN if annual rent exceeds the prescribed threshold.

Under the new tax regime, HRA and LTA exemptions are not available at all, which changes the value of a salary structure built around them.

Special allowance is the residual component and is fully taxable. A structure that is mostly special allowance is a structure optimised for neither PF nor tax.

Provident fund: you contribute 12 per cent of basic plus dearness allowance, and the employer contributes the same. Of the employer's share, a portion goes to the Employees' Pension Scheme rather than to your fund balance, which is why the two sides of the passbook do not match. Contributions above the statutory wage ceiling are permitted where the employer agrees.

Voluntary provident fund lets you contribute more than 12 per cent, at the same interest rate, and is one of the better fixed-income options available to salaried people — though interest on employee contributions above a prescribed annual threshold is now taxable.

Professional tax is a state tax on employment, levied by some states and not others, deducted monthly at a small prescribed amount. Karnataka, Maharashtra, West Bengal, Tamil Nadu, Telangana and several others levy it; Delhi and Uttar Pradesh, among others, do not.

TDS on salary is your employer's estimate of your annual income tax liability, spread across twelve months. It depends on the tax regime you declare and the deductions you declare to your employer. Declaring nothing means over-withholding all year and a refund at filing; declaring more than you can prove means a shortfall in April.

ESIC applies where your gross wage is below the prescribed threshold, giving access to the ESIC medical system. Both employee and employer contribute at prescribed rates.

Check that the PF deducted from you actually appears in your EPF passbook. Deduction without deposit is a serious offence and is unfortunately not rare, particularly in smaller establishments.

Check that your PAN is correctly recorded, because TDS credited against a wrong PAN will not appear in your Form 26AS and you will effectively pay it twice.

A payslip every month. It is not optional — most states' Shops and Establishments Acts require wage slips to be issued, and it is the document every loan application, visa application and rent agreement will ask for.

Form 16 by 15 June for the previous financial year, from every employer you worked for in that year. If you changed jobs, you need both, and you must combine them at filing — not filing on the basis of one Form 16 alone, which is a common error that produces a tax demand later.

Form 12BB is what you submit to your employer to declare investments and rent for TDS purposes, with supporting proof. Submit it on time — employers set an internal deadline, usually in January, and missing it means TDS is deducted without your deductions and recovered only via a refund.

Check Form 26AS and your Annual Information Statement on the income tax portal against your Form 16. A mismatch means the TDS was not correctly credited, and it is far easier to fix while you are still employed there.

Your EPF passbook, checked periodically, and your UAN with KYC completed and employer-approved.

Keep payslips and Form 16s for at least the period the tax department can reopen an assessment. They are also what you will need if you ever have to prove a wage claim.

When you leave, get the relieving letter, the experience certificate, the final payslip and the full-and-final settlement statement in writing, and check the F&F arithmetic against your own — leave encashment and notice recovery are the two lines most often computed in the employer's favour.