Salary slips are just as valuable as employment certificates when it comes to seeking loans, finding future employment, filing taxes, applying for government subsidies, and serving as a legal document for employment.
Let us first examine the significance of the salary slip components.
Proof of employment
Applicants applying for travel visas or to universities and colleges must submit a copy of their last drawn salary and designation as legal proof. As part of background checks, the salary slip serves as legal proof of employment. As well as serving as legal proof against salary claims, the salary slip also contains the employee’s current title. All the past slips can be used to track the employee’s career trajectory.
Income Tax Planning
There are several components on a salary slip that are tax-deductible. These include basic salary, HRA, medical allowance, travel allowance, and deductions. The breakdown of earnings includes the basic salary, HRA, medical allowance, travel allowance. Furthermore, TDS allows employees to plan their tax liability in advance. Since these deductions increase the take-home salary, income tax slabs are calculated based on the take-home salary.
Tax planning is a crucial part of managing finances. Consequently, it assists in maximizing tax deductions from income, rebates from taxes, allowances from taxes, and concessions within permissible limits under the Income Tax Act of 1961.
Keeping track of salary breakup is essential to keep up with Income Tax. Salary slips not only facilitate tax assessment, but also assist in calculating TDs returns and refunds.
Seeking future employment
An employee’s salary slip proves their current employment status as well as their current pay scale. In this document, prospective employers are able to negotiate at an aggregate level, i.e. the total cost to the company (CTC), and at each component level, i.e. basic salary and allowances. Past payslips are almost always requested as proof of employment and earnings by employers.
Furthermore, employees can evaluate the offers they receive from new employers by comparing past salary slips. Salary slips play an important role in evaluating the experience. Therefore, they play a significant role in the job search. It is also a deal breaker when negotiating a salary with a new employer because it helps decide the hike that one should be receiving. Additionally, salary slips can be used to prove career progress.
Avail loans and credit card
As well as displaying all the details of a salary and designation, a salary slip serves as legal proof of a person’s credit paying ability. Further, it is used to apply for loans, credit cards, mortgages, and other borrowings. As a result, banks and lending institutions ensure that they take a copy of the salary slip when applying for a loan, credit card, mortgage, etc. Based on the salary statement, the creditworthiness of a borrower is assessed.
Salary slips are used in setting credit limits. They are also used to determine eligibility for loans and credit cards. They are also used to determine your taxes.
Take advantage of government subsidies
In addition to free services, pay slips can be used to avail of heavily subsidized services. For example, medical care, food grains, and emergency assistance can all be obtained with a pay slip.
In addition to calculating taxable income, Scripbox’s income tax calculator recommends mutual fund investments (ELSS) that can help save income tax.
In-hand/gross salary vs. Cost to Company (CTC): What’s the difference?
A company’s cost to the company includes components such as housing rent allowances, conveyance allowances, gratuities, medical expenses, employee provident funds, and other allowances. The cost to the company includes components such as housing rent allowances, conveyance allowances, gratuities, etc. A gross salary refers to the amount received by an employee before deductions are made. It refers to how much the employer commits to the employee every month. Gross salaries exclude PF and gratuities. Salary net of deductions is the employee’s net pay.
The cost of hiring and sustaining an employee is the amount spent by an employer. The CTC varies depending on a number of factors and thus impacts the net salary an employee receives. It is considered variable pay. It can be corrected by simply matching the CTC to the actual salary received by the individual.
Below you can see how Mr. Charan’s cost to the company compares to his gross salary. His CTC is INR 5,50,000.
Basic Salary: INR 2,75,000 (50% of salary)
DA: INR 82,500 (30% of basic)
HRA: INR 1,43,000 (40% of basic + DA)
CA: INR 19,200 (INR 1600 per month)
Special Allowance: INR 8,700 (based on performance)
EPF Contribution: INR 21,600
The net pay is calculated on the gross salary of INR 5,28,400.
The gross salary does not include bonuses, overtime, etc. Charan’s gross salary is INR 5,50,000 – 21,600 before deductions such as taxes.
The net pay is calculated on the gross salary of INR 5,28,400.The net pay is calculated on the gross salary of INR 5,28,400.