Why Salary Slip Is Important? & Why is it important in Tax Saving?
Salary Slip is the legal document and proof of your income. The employer issues it to the employee. Your Salary Slip has a detailed breakdown of the employee’s salary, including the perks, allowances, and deductions. It does reflect the amount of dedication from the salary on behalf of the Income Tax Department.
It is not just a paper document, and it is required while taking loans and applying for a credit card. In particular, the salary slip contains the gross tax slab of the employee; one can reduce this amount by investing in tax-saving investments like PPF, NPS, and life insurance.
Your salary slip is important document not only for defining your salary but also for the tax saving purpose.
Read the full blog to see what you are missing!
All You Need To Know About Salary Slip
Salary Slip is the legal document and full proof of your income; they are not just monthly slips but give you a detailed breakdown of your salary. Your Slip has three sections. The three sections are as follows:
- Employer and Employee Details
- Earning Heads & Income and Allowances
- Deductions
CTC Vs. Cash-in-hand Salary
Depending upon the type of process your employer is using, you will get all the details in your inbox, or it can be downloaded from the HR Portal. CTC or Cost to the company is typically the company’s cash flow for your position.
CTC often includes the premium paid for the employer benefits scheme as well.
You may notice in your slip the total income consists of multiple smaller components. For most of the allowances, the trend of dividing the total salary between basic and allowance began with introducing various allowances of the Income Tax Act of India. Your salary slip is your preliminary document.
Tax Saving Vs. Salary Slip
There are various components of salary that are taxed differently. Meaning the tax on allowances is different from your basic salary of yours. You can receive different types of allowances based on the tax treatment:
- Fully Taxable Allowances
- Partially Taxable Allowances
- Fully Exempt Allowances
Any allowance which doesn’t fall in a partially or fully exempted category is fully taxable—the fully taxable allowances like personal allowances, variable allowances, and miscellaneous.
You have calculated the exempted amount of the partially exempt allowance like House Rent Allowances (HRA), entertainment allowances, and special allowance.
Conveyance Allowance is exempt up to Rs 1600 per month, whereas special allowance depends on the actual money spent on the performer of your duty.
Some employers might provide you with a special allowance for the incurring expenses. Hence, the allowance is exempt to the extent of your expenditure.
There tax saving through salary slip helps.
Estimate Your Tax Saving Need
Salary Slip helps you in estimating your tax liability. Although the salary slip contains tax deductions (TDS), your final tax liabilities would differ based on the following factors:
- Actual on the Job Expenses
- Your House Rent
- Mid-Year Appraisal
- Performance Bonuses
Therefore, you need to follow through with your tax-saving investment through the year as per the income and expenses incurred by you.
Maximizing Your Tax Saving Through Salary Slip
The best way to maximize your tax saving is to maximize your savings. You need to follow the old principles of investing first and spending later. Appraisals and Bonuses all of a sudden increase your taxable income. Suddenly, you can plan to minimize them, and your salary slip is the best place to start. You can even get a salary restructured between allowances to maximize your exemptions.
The need for Salary Slip is important, and somehow it is important for tax saving as well.
