Do you understand everything in your salary slip? Here's how to decode it

The more money you have at your disposal, the more you can spend, and the more you can save!
Do you understand everything in your salary slip? Here's how to decode it
Do you understand everything in your salary slip? Here's how to decode it
Written by:

Going over salary statements can seem like a terribly boring chore, but it’s essential, because by doing so, you will know the tax deducted at source from your salary. And the lower the taxes, the greater the money that gets credited to your bank account.

The more money you have at your disposal, the more you can spend, and the more you can save! And women absolutely need to save more, given their longer lifespans and medical vulnerabilities.

Decoding your salary statement

The Income Tax Act, 1961 divides income into five broad categories, namely, income from salaries; income from house property; profit and gains from business and profession (which deserves its own column); and finally, income from other sources.

Although bulk of your income comes from salary, it is useful to know the other heads of income because there is a possibility that you might get a benefit from another head of income.

Income from salary

Your gross salary represents your cost to the company. The entire amount won’t be taxed, because you will be allowed deductions from your salary, known as allowances. Starting from Financial Year 2018-19, you will be allowed a flat deduction of Rs. 40,000 for medical and transportation reimbursement, so you don’t have to be bothered with submitting receipts.

Your organization may also give you other tax-deductible benefits, such as Leave Travel Allowance and House Rent Allowance. Other allowances, like Overtime allowance or Meals Allowance, for example, are fully taxable and therefore, might not show up on your salary statement. When a component that forms a part of your salary is reduced from the calculation, it’s a good thing! The lower your salary in your tax calculation, the less tax you’ll have to pay. 

Income from house property

If you receive rental income, that is, if you have a property that you have let out for rent, then you will have to report this income under Income from House Property. Even if you don’t receive rental income, this category is important if you are taking or have taken a home loan, because you will be allowed a deduction of up to Rs 2,00,000 on the interest component of the home loan that you are paying.

If you’re a married couple, where both husband and wife are working, and you’re thinking of taking on a home loan, take a joint loan with the property in both your names so that both of you can avail of the benefit of the deduction!

Income from other sources

This is where all your miscellaneous income piles up. Bank Interest, Fixed Deposit Interest, gifts and dividends are disclosed here. If you have Fixed Deposits, I would recommend not disclosing them because your bank will be deducting tax at source anyway. Disclosing them here would mean that it gets taxed twice.

Savings Bank Interest is tax free up to Rs 10,000, as are cash gifts up to Rs 50,000 that are received on occasions. So if you and your spouse conduct a function where you receive cash gifts and the money is in excess of Rs 50,000, split the sum between both your accounts!

Chapter VI-A deductions

Look at your salary statement BEFORE you jump and purchase any ‘tax-saving’ schemes. Your 80C deduction will already have PF, and if you are paying a home loan, you will be allowed the principal amount here as well. Term insurance and investments in Tax Saving FDs and Mutual Funds are also covered here, so make sure that your existing deduction is less than Rs 1,50,000 before you buy a tax saving scheme and then make a decision.

And if there is a necessity to close the gap, try to restrict yourself only to that gap. For example, if your existing 80C deductions come up to Rs 1,40,000, don’t allow yourself to spend more than Rs 10,000. Remember, there’s only so much tax you can save!

Sitting with your salary statement can seem annoying and it is entirely possible that the letters and numbers seem like Greek and Latin, but it is important that you get over whatever prejudice you have about tax being difficult (because it’s not) and see if you can cut down on your taxes and maximise the salary that gets credited to your bank account. After all, you’ve earned it.

Rupee Rani is a weekly column on finance for women. Write to us with your queries at

Related Stories

No stories found.
The News Minute