How to Read Your Salary Slip and Understand Every Deduction on It

A salary slip is divided into earnings and deductions. The earnings side lists what your employer is paying you before anything is taken out. The deductions side lists what gets subtracted before the money reaches your account. The number you care about, the one that hits your bank, is what remains after both columns are settled.

The earnings column typically carries: Basic Salary, House Rent Allowance (HRA), Special Allowance, Leave Travel Allowance (LTA), and sometimes a Medical Allowance or Performance Bonus. Basic Salary is the foundation. It is usually 40 to 50 percent of your Cost to Company (CTC), and almost every other calculation, provident fund contribution, gratuity eligibility, overtime, is anchored to it. A low basic with a high special allowance can look generous on paper while quietly reducing what you accumulate in retirement.


The deductions column is where most people stop reading. It shouldn't be.





Employee Provident Fund (EPF) is the most common deduction. Your employer deducts 12 percent of your basic salary every month and puts it into your EPF account. Your employer also contributes 12 percent, but not all of that goes into EPF, 8.33 percent of it goes into the Employee Pension Scheme (EPS), which funds your pension after retirement. The EPFO manages this fund and the current interest rate is declared annually by the government. You can check your EPF balance on the UMANG app or the EPFO member portal using your UAN.

Professional Tax is a state-level tax, not a central one, which is why the amount varies. Maharashtra charges up to ₹2,500 a year. Some states charge less; a handful do not levy it at all. It is deducted in monthly instalments and is capped by the state government, your employer cannot charge more than the statutory limit.

TDS, or Tax Deducted at Source, is income tax collected before you receive your salary. Your employer estimates your annual tax liability at the start of the financial year, divides it by twelve, and deducts that amount each month. If you have submitted investment declarations, under Section 80C, 80D, HRA exemption, or LTA, your employer factors those in and reduces the TDS accordingly. If you have not submitted declarations, your employer deducts at the higher rate and you claim the refund when you file your return. The TDS amount on your slip should match Form 26AS.

Some slips also show a deduction for ESIC, Employee State Insurance Corporation. This applies if your gross salary is ₹21,000 or below per month. The employee contribution is 0.75 percent of gross wages; the employer contributes 3.25 percent. ESIC covers medical benefits, maternity leave, and disability for eligible employees.

HRA is the most widely misunderstood line on a salary slip. It is not automatically tax-free. The exemption you can claim is the lowest of three figures: the actual HRA received, 50 percent of basic salary if you live in a metro city or 40 percent if you do not, and actual rent paid minus 10 percent of basic salary. If you pay rent but have not submitted your rent receipts and landlord PAN to your employer, you are paying tax on money you did not keep.

LTA covers travel costs for you and your family within India, twice in a block of four calendar years. The current block runs from 2022 to 2025. The exemption covers only the travel fare, train, bus, or economy air, not hotels or food. If you have not claimed LTA in the current block, check whether your employer allows you to carry it forward.

Special Allowance is fully taxable. It is the residual figure, whatever is left after the structured components are allocated. Employers use it to top up packages without increasing the basic, because a higher basic raises their EPF contribution. Knowing this is useful when you negotiate a raise: pushing for a higher basic rather than a higher special allowance changes your long-term accumulations.



Three numbers matter most: Gross Salary (total earnings before deductions), Total Deductions, and Net Pay (what you receive). The difference between your CTC and your gross salary is your employer's contributions, EPF, ESIC if applicable, gratuity provision, which do not appear as earnings on your slip but are counted in the CTC figure your offer letter quoted.

Gratuity is often listed in the CTC breakup but not on the monthly slip, because it is paid only on exit after five years of continuous service. The formula is: last drawn basic salary multiplied by 15, divided by 26, multiplied by years of service. Knowing this makes the basic salary figure on your slip more meaningful than it might appear.

Check three things every month: that the EPF deduction matches 12 percent of your basic, that the TDS figure is consistent with your declared investments, and that your UAN is active and linked to your Aadhaar. A mismatch in any of these is easier to correct in the month it appears than at the end of the financial year when your employer has already filed returns.