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This is an allowance provided by the employer when the employee or any of his family members fall sick for the cost incurred on their treatment. Any expense over and above that is taxable. 19,200 annually) is provided to the employees for commuting from home to office and vice-versa. This is basically given to individuals who live in rented houses with the intention of making it easier for them to afford a place of accommodation. HRA is an allowance that is paid by an employer to the employee as a part of the latter’s salary. According to the Income Tax Act, the entire amount of DA received is taxable and has to be declared at the time of filing income tax returns. It is generally paid in the form of a fixed percentage of basic salary. The purpose behind providing this allowance is to reduce the impact of rising inflation. Dearness Allowanceĭearness Allowance (DA) is given by certain employers to their employees, compensating them for an increase in the cost of living. It excludes bonuses, overtime pay or any other compensation from an employer. Basic Salaryīasic Salary is the amount that an employee receives prior to any extras being added or payments deducted. The components that form part of the Income/Earnings side of the salary statement are: 1.
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In other words, Gross Salary is the amount paid before the deduction of taxes or deductions and is inclusive of bonuses, overtime pay, holiday pay, etc. The amount received post subtracting gratuity and the employee provident fund (EPF) from Cost to Company (CTC) is called Gross Salary. It is variable and depends on several factors which in turn affect the net salary. CTC consists of salary, pension, PF contributions, allowances, etc. It is the amount spent on hiring and reimbursing for the employee’s services. Here are the major differences between the two: Cost to Company (CTC)ĬTC can be defined as the total amount an organization spends on an employee during a given year. They can instead invest the same in high yielding investments.
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Employees do have an option to opt-out of some of these forced savings. Better Understanding:Ī salary slip has components which are forced savings like EPF and ESI. Having knowledge of salary slips and their components can help an employee take advantage of the tax deductions available, hence allowing them to plan their taxes efficiently. It also acts as a negotiating agent for salary hikes while changing new jobs. Choosing the next job smartly:Ī salary slip assists in choosing jobs smartly from different companies while switching jobs. It is very important to understand salary slips and their components as it can help employees take advantage of the situations around them: 1. It also helps in filing income tax returns and applying for loans and mortgages and negotiating for a salary hike when applying for a new job. Also, the salary slip acts as proof of employment. A Salary Slip or Payslip is legal proof of income for an employee.