Pay slip: Here’s all you need to know about your salary slip in 7 brief points

Understanding the pay slip will help you in effective money management.
People do not pay enough attention to their pay slip. To check, just ask a few close friends their exact pay. Nine times out of ten, they will think for a minute and provide you a rough number which is credited into their bank account as their salary. Understanding the pay slip will help you in effective money management.
Components of pay slip

Typically, a salary slip shows different components of your salary such as basic salary, allowances such as dearness allowance, house rent allowance, conveyance allowance, special allowance, medical allowance, leave travel allowance and deductions like income tax, provident fund, professional tax. Broadly, your pay slip shows three major items—earnings, perks/allowances and deductions.
Basic: As the name suggests, it is the basic component of your salary and it constitutes 40-50% of your total pay. This component tends to be higher for employees of junior levels. At senior levels, it will be less and additional components such as performance based pay or target linked pay will be major components. As far as income tax is concerned, basic pay matters as it is taxable. Further, house rent allowance and provident fund are also linked to the basic pay.
Dearness allowance: It is an allowance which is paid to top up your basic in accordance with the prevailing inflation rate. This component will be 30-40% of your basic. As far as income tax is concerned, pay means basic and dearness allowance combined together.

House rent allowance (HRA): It is mandatory to provide certain sum of money to employees under the HRA subhead. This component constitutes 10-35% of your basic and varies with your designation and role in your organisation. As this is an allowance, it is exempt from income tax up to a certain limit, provided you are actually paying house rent and furnishing the lease document or rental receipts.
Conveyance allowance: This allowance is paid to cover your work-related travel expenses. Up to R1600 is exempt from income tax every month. One needs to pay attention to this component as this helps make the pay more tax-efficient and impacts the take home pay of those at lower levels of pay strata.
Target linked pay: This is performance linked pay, often payable on the basis of certain pre-determined targets and other metrics. This is not payable monthly and comes to you as a lump sum, often at the end of every quarter or at a certain time of the year. Generally, there is a cap on the maximum amount that one can get under this head. Though, this component adds to your income, it increases your tax outgo.
Income tax: As per law, your employer deducts certain amount from your salary known as tax deducted at source. According to your tax slab, the employer will deduct this amount. To be more tax efficient, it is better to provide supporting documents related to tax saving investments and items such as payment of premiums for life, health and other items three months before the financial year end to avoid excess deductions towards the end of the year.
Provident Fund: As per the prevailing provisions of the law, an employer is mandated to deduct 12% of your basic every month and also makes a matching contribution and remit the same into your provident fund account. The accumulations earn interest at a rate announced every year by the government. The contribution gets tax exemption. Provident fund is meant for your retirement expenses. So, it is a part of your investment portfolio.
Your pay slip might have more information and what we have discussed are only a few important components. From now, do not give just a cursory look at your pay slip as it shows your current financial status and also helps you in future financial planning.