Understanding Your Salary Slip

Every line on your monthly payslip decoded — earnings, deductions, employer contributions, tax, and the exact formula that converts your CTC into your bank credit. India 2026 edition.

20+Components Explained
Earningsvs Deductions
TDS / Form 16Tax Demystified
Mistakesto Check Monthly

Sample Monthly Payslip — Annotated

Every field labelled and explained. Hover the numbered dots to see what each item means.

ABC Technologies Pvt. Ltd.
Pay Slip for the month of March 2026  |  FY 2025–26  |  Department: Engineering

Employee Name
Rajesh Kumar
Employee ID ①
EMP-00421
Designation
Senior Engineer
PAN ②
ABCPK1234D
UAN (PF) ③
100123456789
Date of Joining
15 Aug 2018
Working Days ④
26 / 26
Bank Account
HDFC ••••5678


Earnings Component
Amount (₹)
Basic Salary ⑤
48,000
Dearness Allowance (DA) ⑥
0
House Rent Allowance (HRA) ⑦
24,000
Leave Travel Allowance (LTA) ⑧
4,000
Conveyance Allowance ⑨
1,600
Medical Allowance ⑩
1,250
Food / Meal Allowance ⑪
2,200
Telephone Reimbursement ⑫
1,000
Special Allowance ⑬
16,450
Performance Bonus (Monthly)
5,000

Deductions Component
Amount (₹)
Employee PF Contribution ⑭
5,760
Employee ESI ⑮
0
Professional Tax (PT) ⑯
200
TDS / Income Tax ⑰
4,200
Group Health Insurance ⑱
350
Voluntary PF (VPF) ⑲
0
Salary Advance Recovery ⑳
0

💼 Employer Contributions (Not Deducted — Part of CTC)

Employer PF: ₹5,760  |  Gratuity: ₹2,309  |  ESI: ₹0

These amounts are borne by your employer. They do not appear as deductions from your gross salary but are included in your CTC.

Gross Earnings: ₹1,03,500
Total Deductions: ₹10,510

💰 Net Take-Home Salary (March 2026)
₹92,990

📌 Annotation Guide — What Each Number Means
①Employee IDUnique identifier assigned by employer. Used for PF, ESI, payroll, Form 16 and HRMS records.
②PANPermanent Account Number — linked for TDS deduction and Form 16 issuance. Mandatory for salary above ₹2.5L/year.
③UAN (Universal Account Number)12-digit PF account number. Stays the same across employers. Used to check PF balance, transfer and withdraw.
④Working DaysActual days worked / total working days. Loss of pay (LOP) is calculated for absent days and deducted proportionately.
⑤Basic SalaryCore component — typically 40–50% of CTC. Foundation for PF, gratuity, HRA and DA calculations. Fully taxable.
⑥Dearness Allowance (DA)Cost-of-living adjustment — common in Govt jobs (50%+ of basic). Usually 0% in private sector. Fully taxable.
⑦House Rent Allowance (HRA)50% of basic (metro) or 40% (non-metro). Partially tax-exempt under Sec 10(13A) if you pay rent. (Old regime only)
⑧Leave Travel Allowance (LTA)For domestic travel. Tax-exempt for actual travel cost (2 journeys per 4-year block) under Sec 10(5). Old regime only.
⑨Conveyance AllowanceFor commuting to office. ₹1,600/month is a common standard. Fully taxable in both tax regimes since FY 2018–19.
⑩Medical AllowanceFixed monthly medical component. Fully taxable unless reimbursed against actual medical bills (with bills submission).
⑪Food / Meal AllowanceTax-free up to ₹50/meal × 2 meals × 22 working days = ₹2,200/month (via Sodexo or Zeta meal cards/vouchers).
⑫Telephone ReimbursementTax-exempt if paid against actual phone/internet bills. Keep bills and submit to employer for reimbursement claim.
⑬Special AllowanceBalancing residual amount = CTC minus all other components. Fully taxable. No exemption under either tax regime.
⑭Employee PF Contribution12% of Basic+DA deducted from your salary and deposited to your EPF account. Eligible for Sec 80C deduction (Old regime).
⑮Employee ESI0.75% of gross salary — only if gross ≤ ₹21,000/month. Provides medical and maternity benefits through ESIC hospitals.
⑯Professional Tax (PT)State-levied tax — max ₹2,500/year. Not applicable in Delhi, Haryana, UP, Rajasthan, J&K. Sec 16(iii) deductible.
⑰TDS / Income TaxTax Deducted at Source on salary (Sec 192). Employer estimates annual tax and deducts 1/12th monthly. Form 16 issued in June.
⑱Group Health InsuranceMonthly premium for employer-provided group mediclaim policy. Deducted from salary; covers employee and family.
⑲Voluntary PF (VPF)Optional additional PF contribution above 12% mandatory. Earns same EPF interest (8.25%). Sec 80C eligible (Old regime).
⑳Salary Advance RecoveryIf you took a salary advance earlier, it is recovered in EMIs from your monthly payslip. Not a tax deduction.

Use our Salary Break-up Calculator to see your full payslip simulation with tax under New & Old Regime.

Salary Calculator →

💵Gross Salary vs Net (Take-Home) Salary

The Core Salary Formula
CTC = Gross Salary + Employer PF + Employer ESI + Gratuity + Non-Cash Perks
Gross Salary = Basic + DA + HRA + LTA + All Allowances + Bonus
Total Deductions = Employee PF + PT + ESI + TDS + Health Ins + Other
Net Take-Home = Gross Salary − Total Deductions

💵 Earnings (Added to Gross)

• Basic Salary
• Dearness Allowance (DA)
• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Conveyance Allowance
• Medical Allowance
• Food / Meal Allowance
• Telephone Reimbursement
• Children Education Allowance
• Special / Other Allowance
• Performance / Variable Bonus
• Overtime Pay
• Night Shift Allowance
• Project Allowance

➖ Deductions (Subtracted from Gross)

• Employee PF Contribution (12%)
• Professional Tax (max ₹2,500/yr)
• Employee ESI (0.75% if applicable)
• TDS — Income Tax (Sec 192)
• Group Health Insurance Premium
• Voluntary PF / NPS
• Salary Advance Recovery
• Loan EMI (if payroll-deducted)
• Canteen / Cafeteria Charges
• Uniform / Equipment Deposit
• Late Deductions / Loss of Pay

Key Insight: Employer PF (12%), Employer ESI (3.25%), and Gratuity (4.81% of basic) are NOT deducted from your gross salary — they are additional costs borne entirely by the employer and included in CTC. You will NOT see these as deductions on your payslip.

📑How TDS Is Calculated on Your Salary

Your employer calculates your estimated annual tax at the start of the financial year and deducts 1/12th of it every month. This is TDS (Tax Deducted at Source) under Section 192 of the Income Tax Act.

1

Project Annual Gross: Employer projects your annual gross salary (basic + all allowances + expected bonus).

2

Subtract Exemptions: HRA exemption (Old regime), LTA, Standard Deduction (₹75,000 new / ₹50,000 old), Professional Tax are deducted to arrive at taxable salary.

3

Apply Deductions: Under Old Regime, 80C (max ₹1.5L), 80D, NPS (80CCD(1B) up to ₹50K), Home Loan interest (Sec 24b) are deducted from taxable income.

4

Calculate Annual Tax: Apply income tax slab rates + surcharge + 4% Health & Education Cess on the taxable income. Apply 87A rebate if applicable.

5

Divide by 12: Annual tax ÷ 12 = Monthly TDS amount shown on your payslip. This amount is deposited to government by employer by 7th of next month.

6

Update in January–March: If you submit investment proof (Form 12BB), TDS is recalculated. Excess TDS is refunded in ITR; shortfall is recovered in last few months of the year — causing a sudden dip in take-home.

🏦EPF — Employee Provident Fund Explained

PF is the single largest deduction on most payslips. Here’s exactly how the 24% total PF contribution is split:

EPF Interest & Withdrawal
Current EPF Interest Rate: 8.25% per annum (FY 2025–26, declared by EPFO)
Tax-free withdrawal after: 5 continuous years of service
Taxable withdrawal: Before 5 years → TDS @10% (PAN linked) or @20% (no PAN)
Check balance: EPFO Unified Portal (epfindia.gov.in) or missed call to 011-22901406

📋All Salary Slip Components — Quick Reference 2026

🏢Employer Costs — What’s in CTC but NOT on Your Payslip

These components are part of your CTC but are never deducted from your salary — your employer bears them entirely. They do not appear as deductions on your payslip but significantly increase the cost to the company.

Mandatory

🏦 Employer PF — 12% of Basic+DA

Split as 3.67% to EPF + 8.33% to EPS. Deposited to EPFO by 15th of next month. Part of CTC but employer absorbs it — not deducted from gross.

Mandatory (if applicable)

🏥 Employer ESI — 3.25% of Gross

Applicable only if gross salary ≤ ₹21,000/month. Employer pays 3.25% of gross on top of salary. Funds healthcare via ESIC hospitals across India.

Mandatory (after 5 yrs)

🎁 Gratuity — 4.81% of Basic

Provisioned annually by employer at 4.81% of basic (= 15 days’ basic per year). Paid as lump sum after 5 years of service. Tax-free up to ₹25 lakh.

Optional

🛡️ Group Health Insurance

Employer-sponsored mediclaim policy covering employee and family. Premium is a CTC cost; sometimes partly recovered from employee and shown as payslip deduction.

Optional

📱 Perquisites / Perks

Company car, fuel, laptop, mobile phone, club membership, relocation allowance — valued and included in CTC. Taxed as perquisites under Sec 17(2) of IT Act.

Optional

🎓 Training / Development

Some companies include cost of mandatory training, certifications or professional development in CTC. Not part of cash salary — a non-monetary CTC component.

🧮Important Payslip Formulas You Must Know

Loss of Pay (LOP) Deduction
LOP Deduction = (Gross Monthly Salary ÷ Total Working Days) × Absent Days
Example: Gross ₹1,00,000 ÷ 26 working days × 2 days absent = ₹7,692 LOP deduction
HRA Exemption (Old Regime — Sec 10(13A))
Exempt = Least of: ① HRA Received | ② Rent Paid − 10% of Basic | ③ 50%/40% of Basic
Metro (Delhi/Mumbai/Chennai/Kolkata): 50% of Basic | All others: 40% of Basic
Gratuity Calculation
Gratuity = (Basic + DA) × 15 × Years of Service ÷ 26
Annual Provision in CTC = Basic × 4.81% (= 15÷26÷12 × 100)
Tax-free up to: ₹25,00,000 (as per latest amendment)
Professional Tax Slabs (Maharashtra — Most Common)
Gross ≤ ₹7,500/month → ₹0
Gross ₹7,501–₹10,000/month → ₹175/month
Gross > ₹10,000/month → ₹200/month (₹300 in February) → Total ₹2,500/year
ESI Applicability & Rates
Applicable only when Gross Salary ≤ ₹21,000/month
Employee contribution: 0.75% of gross salary
Employer contribution: 3.25% of gross salary (employer cost — not deducted from employee)

⚠️Common Mistakes to Spot on Your Payslip

Wrong PF Deduction

PF deducted on wrong base (should be Basic+DA only, not gross salary). Can result in over-deduction if employer incorrectly applies 12% on total gross.

✅ Fix: Check that PF = 12% of (Basic+DA) only

PT Deducted in Non-PT State

Professional Tax is not applicable in Delhi, Haryana, UP, Rajasthan, J&K, Uttarakhand. If you are posted there, PT should be ₹0.

✅ Fix: Verify your work location state’s PT rules

Excess TDS in March

If investment proof was not submitted by January, employer deducts remaining annual tax in Feb–March — causing a large unexpected dip in take-home.

✅ Fix: Submit Form 12BB + proofs by January 31

Wrong Working Days

LOP (Loss of Pay) deducted for sanctioned leave or public holidays. HR sometimes incorrectly marks approved leave as LOP, reducing salary unfairly.

✅ Fix: Cross-check leave balance and approval records

HRA Not Matching Offer Letter

HRA on payslip differs from offer letter amount after a salary revision or promotion — HRA sometimes not updated in HRMS after CTC revision.

✅ Fix: Compare payslip components with revised offer letter

ESI Deducted Above ₹21,000 Gross

ESI is only applicable if gross monthly salary is ₹21,000 or below. Once gross crosses ₹21,000, ESI should stop. Sometimes not updated in payroll system.

✅ Fix: Inform HR to update ESI applicability if salary exceeded ₹21K

PAN Not Updated → 20% TDS

If PAN is not updated in employee records, TDS is deducted at a flat 20% (higher rate) instead of applicable slab rate — a costly administrative error.

✅ Fix: Ensure your PAN and Aadhaar are linked and updated in HRMS

Bonus Taxed in Wrong Month

Annual bonus paid in April should be taxed and spread across the FY. If taxed fully in the month of payment, TDS in that month appears abnormally high.

✅ Fix: Request payroll to spread the tax impact of bonus across months

✅Monthly Payslip Review Checklist

Review these 10 items every time your payslip is generated — takes less than 5 minutes and can prevent costly errors going unnoticed for months.

☑️Verify Basic Salary = Expected AmountCompare with your offer letter / last revision letter. Basic should not change without a formal increment letter.
☑️Check Working Days Are CorrectNumber of working days should match the month. LOP days should only reflect unplanned/unapproved absent days — not sanctioned leave.
☑️PF Deduction = 12% of Basic+DAVerify PF is computed on Basic+DA only — not on gross. The employee share on payslip should exactly equal 12% of (Basic + DA).
☑️TDS is Reasonable and ConsistentMonthly TDS should be approximately Annual Tax ÷ 12. A sudden large spike in March indicates investment proofs were not submitted in time.
☑️Professional Tax Matches Your StatePT amount should match your state’s applicable slab. Should be ₹0 if you work in Delhi, Haryana, UP, Rajasthan, or Uttarakhand.
☑️ESI Deduction Is ApplicableESI should only be deducted if your gross is ₹21,000/month or below. If your salary grew above ₹21K, ESI should have stopped.
☑️UAN and PF Account Number Are CorrectCross-check your UAN number on the payslip with your EPFO passbook. Ensure PF is being deposited to your UAN — not a wrong account.
☑️Increment Is Reflected from Effective DateAfter an appraisal, verify the revised salary is effective from the correct date and arrears (if any) have been paid for the retrospective period.
☑️Bank Account Details Are CorrectConfirm the salary credit bank account on payslip is your current active account — especially important after changing banks.
☑️Download and Archive Every PayslipSave monthly payslips as PDFs. They are essential for home loan applications, visa processing, future employment background checks, and ITR filing.

📄Form 16 — Your Annual Tax Summary from Employer

Form 16 is a TDS Certificate issued by your employer under Section 203 of the Income Tax Act. It is the most important document for filing your annual Income Tax Return (ITR-1 for salaried employees).

Important: Always cross-check Form 16 Part A with your Annual Information Statement (AIS) on the Income Tax portal (the Income Tax e-filing portal). If there is a mismatch, contact your employer’s payroll team immediately before filing ITR — mismatches can trigger IT notices.

Also Try: Stagnation Increment Calculator

Government & PSU Bank employees — find your stagnation pay, date and total benefit in one click.

SI Calculator →

Frequently Asked Questions

Everything you need to know about reading and understanding your Indian salary slip

Why is my take-home salary much less than my CTC?▾
CTC (Cost to Company) includes many items that never reach you as cash: Employer PF (12% of basic), Gratuity provision, where included in CTC, and sometimes health insurance or other perks. These are employer costs included in CTC but not in gross salary. Then from your gross salary, further deductions include Employee PF (12%), Professional Tax, TDS, and ESI — leaving you with the net take-home. A ₹12 lakh CTC can produce very different take-home figures depending on employer contributions, tax regime, bonus structure and deductions, so reconcile the offer letter with the monthly payslip rather than using a fixed rule of thumb.
What is the difference between gross salary and basic salary?▾
Basic salary is one core component of compensation, but its share of CTC varies by employer, role and payroll structure. It is the foundation on which PF, HRA, DA and gratuity are calculated. Gross salary is the total of ALL earnings before any deductions — it includes Basic + DA + HRA + LTA + all allowances + bonus. So gross is always higher than basic. For example, if basic is ₹48,000, gross may be ₹1,03,500 after adding HRA (₹24,000), LTA (₹4,000), meal allowance (₹2,200), special allowance (₹16,450) and other components.
Is HRA automatically tax-exempt on my salary slip?▾
HRA is NOT automatically exempt — you must claim it. To get the HRA exemption under the Old Tax Regime, you must: (1) actually be living in a rented house, (2) submit rent receipts to your employer before January, (3) provide landlord’s PAN if annual rent exceeds ₹1 lakh. The exemption is the least of: HRA received, rent paid minus 10% of basic, or 50%/40% of basic. Importantly, HRA exemption is NOT available under the New Tax Regime — it is only an Old Regime benefit.
Why does my TDS amount change every month?▾
Monthly TDS can change for several reasons: (1) Bonus payment months — variable pay adds to taxable income, pushing TDS higher that month, (2) Investment proof submission — submitting 80C proofs mid-year causes a TDS recalculation and reduction, (3) Year-end recovery — if insufficient TDS was deducted earlier, it is recovered in Jan–March causing higher TDS, (4) Salary revision — a mid-year increment increases the projected annual income, causing TDS to be recalculated upward. Your employer recomputes TDS projection every month and adjusts accordingly.
What is Form 12BB and when should I submit it?▾
Form 12BB is a declaration form submitted by an employee to the employer at the start of the financial year (April) and updated with actual proofs by January–February. It includes: (1) Rent payment details for HRA exemption, (2) LTA claim with journey details, (3) Home loan interest for Sec 24(b), (4) 80C investments (PF, PPF, LIC, ELSS, tuition fees), (5) 80D health insurance premium, (6) Other deductions. Submitting Form 12BB with proofs ensures TDS is correctly calculated and you do not face excess TDS deduction or a surprise tax demand at year-end.
Is Professional Tax the same across all states?▾
No — Professional Tax (PT) is a state subject and varies significantly across states. Maximum is ₹2,500/year (constitutional limit). Key facts: Maharashtra, Karnataka, West Bengal, Tamil Nadu, Gujarat, Andhra Pradesh, Telangana charge PT. Delhi, Haryana, Uttar Pradesh, Rajasthan, Uttarakhand, J&K, and Himachal Pradesh do NOT levy PT. The slab structure differs — Maharashtra charges ₹200/month (₹300 in February) for salaries above ₹10,000. Karnataka charges ₹200/month for salaries above ₹15,000. PT is deductible from taxable salary under Sec 16(iii) — a small but real tax saving.
What should I do if my payslip has an error?▾
Follow these steps: (1) Document the error — note the discrepancy with supporting evidence (offer letter, leave approval, previous payslips), (2) Email HR / Payroll — send a formal email (not just verbal) describing the issue and attaching evidence, (3) Mention the financial impact — state exact rupee difference in net pay, (4) Request written confirmation of correction and arrear payment, (5) Check Form 26AS — if TDS was incorrectly deducted, verify it is corrected in TRACES portal within the quarter, (6) Escalate to Labour Department — if employer refuses to correct salary errors, file a complaint with the Assistant Labour Commissioner under the Payment of Wages Act.
Why is my employer’s PF contribution different from mine?▾
Both employee and employer contribute 12% of Basic+DA, but the employer’s 12% is split differently: 3.67% goes to EPF (your actual PF account) and 8.33% goes to EPS (Employee Pension Scheme). So while your full 12% builds your PF balance. The EPS portion funds your monthly pension (₹1,000–₹7,500/month) after retirement under EPS-95. This is why your EPF passbook shows the combined balance growing at a lower rate than expected — only 3.67% (employer) + 12% (employee) = 15.67% of basic+DA actually enters your EPF account each month, not 24%.
Can I withdraw my PF while still employed?▾
Yes — EPFO allows partial PF withdrawal for specific purposes even during employment: (1) Medical treatment — up to 6 months’ basic+DA for self or family illness, (2) Marriage — up to 50% of employee’s share after 7 years of service, (3) Home purchase / construction — up to 90% of balance after 5 years, (4) Home loan repayment — after 10 years of service, (5) Education — after 7 years of service. Full withdrawal is only allowed on resignation (after 2 months of unemployment), or at retirement. Tax-free only after 5 continuous years of service; taxable (TDS @10%) if withdrawn before 5 years.
What is the difference between New and Old Tax Regime for salary?▾
The New Tax Regime (default from FY 2024–25 onwards) offers lower tax slab rates but removes most exemptions and deductions — no HRA exemption, no 80C, no 80D, no LTA, no home loan interest deduction. It gives a higher standard deduction of ₹75,000 and a 87A rebate up to ₹60,000 (zero tax if taxable income ≤ ₹12 lakh). The Old Tax Regime has higher slab rates but allows all exemptions — HRA, LTA, 80C (₹1.5L), 80D, NPS (₹50K), home loan interest (₹2L). Old regime is better if your exemptions + deductions exceed approximately ₹4.25 lakh for income above ₹15L. You must inform your employer at the start of the FY which regime you prefer — the choice can be changed only when filing your ITR.
Do I need to keep my old payslips? For how long?▾
Yes — payslips are important documents and should be retained for: (1) Home / vehicle loan applications — banks typically ask for last 3–6 months’ payslips, (2) Visa applications — most embassies ask for 3–6 months’ payslips, (3) New job background verification — new employers verify last salary, (4) Income Tax — keep 6 years’ payslips in case of IT scrutiny notice, (5) PF disputes — proof of contribution if EPFO records mismatch, (6) Gratuity calculations — last drawn basic pay evidence. Best practice: Download and save payslips as PDF monthly in a dedicated folder. Many HRMS portals delete old records when you leave a company — download before your last working day.
📌 Disclaimer: This guide is for educational purposes only. Tax rules, PF rates, ESI limits and state-specific Professional Tax slabs are subject to change by the respective authorities. Always verify with your employer’s HR / payroll team and a qualified CA for your specific situation. Income tax computation depends on your individual income, investments and circumstances.

🔎Monthly Payslip Reconciliation Workflow

Use the payslip as an audit document, not only as a salary receipt. Start with Basic Pay or Basic Salary, then reconcile allowances, deductions and employer-side items with the underlying policy or order. Government employees can cross-check the current cell with the Pay Matrix Calculator, verify allowance percentages with the DA Calculator and HRA Calculator, and review transport entries with the Transport Allowance Calculator.

When a promotion, MACP or increment changes the salary mid-year, compare the effective date on the payslip with the Pay Fixation Calculator and Next Increment Date tool. For arrears, month-by-month reconciliation is safer than comparing only the final lump sum; the Total Arrears Calculator and Increment Arrears Calculator can help organize the check.

For tax deductions, compare monthly TDS with projected annual income using the Income Tax Calculator and verify HRA tax treatment separately through the HRA Tax Exemption Calculator. Professional Tax, PF/NPS and other deductions should match the rules that actually apply to the employee; a payslip line by itself is not proof that the rate or basis is correct.