DA is considered as pay for income tax purposes, therefore, it is taxable. Dearness allowance (DA) is based on the cost of living and thus it is different for different locations. It is an allowance paid to reduce the impact of inflation on the employee. Basic salary is the first component on the earnings side of the pay slip. It is the basis for the determination of various other components of the pay slip. It is the most important component of salary and usually comprises about 35% to 40% of the total salary.

The following components appear under the incomes part of the salary slip: Thus, the salary slip also helps in setting a credit limit and is an effective asset during the time of providing the loan.Ĭomponents of a salary slip can be understood in two parts: When the employee avails a loan, then every month a fixed EMI will get deducted from the salary received by the employee. The creditworthiness of the borrower/employee is analysed based on the salary slips. Banks and lending institutions usually ask for past two to three months’ salary slips at the time of granting loans. Therefore, a salary slip is a document that is required when applying for a loan or even a credit card. It helps to assess the financial stability of the employee seeking a loan. It acts as legal proof of the ability to repay the credit taken as a loan within a prescribed time limit. Often, while applying for travel visas or to universities, applicants are asked to furnish a copy of their salary slip as proof of employment and designation.Ī salary slip contains all the details of the salary. Salary slips are important legal evidence of employment.

It also helps them negotiate salary with new employers or for new roles. It is an important document to avail loans, credit, mortgage and other borrowings from banks and financial institutions.Įmployees can compare offers from new employers based on their previous salary slips. Salary slips provide lenders with assurance that their lendings will be repaid. The salary slip gives employees access to various free or subsidised facilities provided by the government such as medical care, subsidised food grains, etc. It helps to prepare the Income Tax Returns (ITR) and determine how much tax is to be paid or how much refund is to be claimed by the employee for the year. The salary slip forms the basis for income tax calculation. List of earnings (income) and deductionsĪn example of a salary slip is provided below: Importance of a Salary Slip Basis for income tax payment.EPF account number and UAN (Universal Account Number).Employee PAN/Aadhaar number and bank account number.Employee name, code, designation and department.Company name, address, logo, salary slip month and year.However, the basic template for a salary slip includes the following: The format of salary slips differs for different companies.

Government salary slip format