What is Salary Slip & Why Is It Important in Tax Saving?

What is Salary Slip & Why Is It Important in Tax Saving?


One of the most important documents for a salaried employee is the salary slip or payslip. Your employer may issue a salary slip every month, generally after crediting your salary. Employers either issue a printed hard copy of the salary slip or send the same to the employees through email.

Apart from being legal proof of your monthly salary, the payslip also has a crucial role in helping employees manage their taxes. Here’s everything you should know about salary slips, their components, and how they assist you in saving taxes.

What is a Salary Slip?

As mentioned above, a salary slip is an official document offered by employers to their employees every month. Employers must mandatorily issue salary slips to the employees periodically as proof of salary payments and deductions.

The document contains a detailed breakdown of an employee’s salary and deductions for a given period. Apart from taxation, you’ll also need your salary slips when applying for a home loan, credit cards, making investments, and switching to a different company.

What are the components of a Salary Slip?

A salary slip is generally divided into three sections with the following components:

Employee details

– Name

– Department

– Designation

– Bank Name

– Bank Account Number

– Location


– Basic

– House Rent Allowance

– Dearness Allowance

– Medical Allowance

– Special Allowance


– Professional Tax

– Tax Deducted at Source (TDS)

– Employee Provident Fund (EPF)

Under these sections, you can also find other details such as:

– Gross Salary

– Salary CTC

– Net Salary

– Total Number of Days

– Total Deduction

What is the difference between CTC, Gross Salary, and Net Salary?

Here’s a detailed explanation of what these components mean and how are they different from each other:


CTC or Cost to Company is the company’s total expense for hiring and sustaining an employee. All the components in the ‘Earnings’ section of the salary slip constitute the CTC.

Gross Salary

Gross salary is your monthly income after subtracting EPF and gratuity from the CTC. In other words, it is the salary issued to an employee before tax and other deductions.

Net Salary

The net salary is your take-home or in-hand pay. It is the amount an employee receives after all the applicable deductions are made to the amount.

What is the Use of Salary Slips in Tax-Saving?

All the different allowances offered by an employer are eligible for partial or complete tax deductions and exemptions. Based on these details, an employee can estimate their tax liability.

The payslip also contains details of the TDS deducted by the employer based on your estimated income. However, your tax liabilities can be different depending on your actual income. The information can help you pay income tax, claim tax refunds, and make informed investment decisions for taxsaving.

Understanding the Importance of Salary Slips in Tax Saving

As a salaried employee, the salary slip is one of the most vital proofs of your monthly income. It provides a detailed break-up of your monthly salary based on which you can claim tax deductions, exemptions and make tax-saving investments.

Apart from taxation, the salary slips also play a critical role in helping you access a host of financial products and services. If you’ve just started your career, ensure that you securely store all the salary slips you receive from your employer so that you can use them for reference as and when needed.