The Two Sections of Every Payslip
Every Indian payslip is divided into two halves: Earnings (what the company pays you) and Deductions (what is removed before the money reaches your bank). The difference is your net take-home salary.
If your gross is ₹75,000 and total deductions are ₹11,200, your net is ₹63,800.
Earnings — What You Receive
1. Basic Salary
This is the foundation of your salary — typically 40–50% of your CTC. It is fully taxable. Every other component — PF, HRA, gratuity — is calculated as a percentage of your basic salary. A higher basic means higher PF deduction but also higher gratuity. Many companies deliberately keep basic low to reduce their PF liability.
2. House Rent Allowance (HRA)
HRA is given to help cover accommodation costs. It is usually 50% of basic in metro cities (Mumbai, Delhi, Kolkata, Chennai) and 40% in non-metro cities. If you pay rent, a portion of HRA is tax-exempt under Section 10(13A) — this is one of the most valuable tax benefits available to salaried employees.
1. Actual HRA received
2. 50% of basic (metro) or 40% (non-metro)
3. Rent paid minus 10% of basic
3. Special Allowance
This is the residual component — whatever is left after all structured components are summed to reach the target CTC. Special allowance is 100% taxable with no exemptions. Many companies maximize this to reduce their PF liability. If your special allowance is very high (above 30% of gross), it's worth negotiating a restructuring.
4. Leave Travel Allowance (LTA)
LTA reimburses domestic travel expenses for you and your family. It is tax-exempt for actual travel costs, claimed twice in a 4-year block. You must submit travel bills to HR before February to have it reflected in TDS calculations.
5. Medical / Food Allowance
Some older salary structures include a medical allowance (up to ₹15,000/year was tax-free before FY2019-20 — now subsumed into the ₹75,000 standard deduction). Food coupons / meal cards (e.g. Sodexo) are tax-exempt up to ₹50/meal for 22 working days = ₹26,400/year.
Deductions — What Is Taken Away
1. Employee Provident Fund (EPF)
EPF is mandatory for employees earning below ₹15,000 basic and optional (but common) for those above. The employee contributes 12% of basic salary, capped at the ₹15,000 wage ceiling — so the maximum deduction is ₹1,800/month. The employer matches this contribution, but the employer's share goes into your EPF account, not to your bank.
Max deduction = ₹1,800/month = ₹21,600/year
2. Income Tax / TDS
Your employer deducts Tax Deducted at Source (TDS) every month based on your estimated annual tax liability divided by 12. The amount changes if you submit investment declarations (80C, HRA receipts, etc.) or if your salary changes mid-year. The tax regime you choose — old or new — significantly affects this number.
3. Professional Tax
This is a state-level tax, varying by state. Most states charge ₹200/month (₹2,400/year). Some states like Delhi and Haryana don't charge professional tax at all. It's deducted by the employer and remitted to the state government.
4. ESIC (if applicable)
Employees' State Insurance is applicable if your gross salary is below ₹21,000/month. The employee contribution is 0.75% of gross salary. If your salary is above ₹21,000, ESIC doesn't apply to you.
How to Verify Your PF Deduction
This is the most common payslip error. Here's how to check:
- Find your basic salary on the payslip
- Calculate: 12% × min(your basic, ₹15,000)
- Compare to the PF amount shown on your payslip
Expected PF = 12% × ₹15,000 = ₹1,800
If payslip shows ₹5,400, your employer is deducting on actual basic (₹45,000 × 12%) which is above the statutory minimum but means higher retirement savings — check your offer letter for their policy.
Use the SalaryTruth Payslip Decoder to check your PF automatically.
HRA Exemption — Are You Claiming It?
If you pay rent and haven't submitted rent receipts to HR, you're likely paying more TDS than necessary. Here's what you need to do:
- Submit rent receipts to HR before February 15 each year
- If annual rent exceeds ₹1 lakh, also submit your landlord's PAN
- The exemption is calculated monthly — missing the deadline means you lose the benefit for the whole year
Real Payslip Example with Calculations
Let's walk through a realistic payslip for someone with ₹12 LPA CTC in Bengaluru:
| Component | Monthly Amount | Notes |
|---|---|---|
| Basic salary | ₹40,000 | 40% of CTC |
| HRA | ₹16,000 | 40% of basic (non-metro) |
| Special allowance | ₹28,000 | Residual — fully taxable |
| LTA | ₹3,333 | ₹40,000/year ÷ 12 |
| Gross salary | ₹87,333 | |
| — Employee PF | −₹1,800 | 12% × ₹15,000 cap |
| — TDS (new regime) | −₹7,200 | Approx. on ₹12L taxable |
| — Professional tax | −₹200 | Karnataka rate |
| Net take-home | ₹78,133 |
5 Red Flags to Watch for on Your Payslip
- PF deduction is ₹0 — If your basic is below ₹15,000, PF is mandatory. If you haven't opted out, this is a legal violation.
- TDS is ₹0 and your income is above ₹7 lakh — Your employer may not have correct declarations on file. You'll face a large liability when filing ITR.
- Gross salary ≠ sum of components — Add up all earning components yourself. If the numbers don't match, ask HR for a reconciliation.
- No professional tax in a state that charges it — Karnataka, Maharashtra, Tamil Nadu and most other states require it. Its absence may mean compliance issues.
- HRA is listed but you're not claiming exemption — Check your Form 16 Part B. If HRA isn't showing as an exemption, you're overpaying TDS.