How to Read Your Salary Slip

Most people read a payslip the way they read a receipt — straight to the number at the bottom. The figure that actually decides your provident fund, your gratuity and how much of your rent allowance is tax free is somewhere in the middle.

The two halves

A payslip has earnings on one side and deductions on the other. Earnings added up is your gross. Gross minus deductions is your net — what reaches the bank.

Neither of those is the number that matters most.

Basic pay: the number everything hangs off

Basic pay, plus dearness allowance where you get it, is the figure most calculations use. Not gross, and definitely not CTC.

It decides your provident fund contribution, your gratuity, and the 50% or 40% ceiling in the HRA exemption. A salary structure with a low basic and a large “special allowance” produces a healthier net today and a thinner PF and gratuity later. That is a real trade-off, and it is worth knowing which side of it your structure sits on.

The labour codes changed how much room employers have here. They use one definition of wages across provident fund, gratuity, bonus and overtime. Basic pay, dearness allowance and retaining allowance always count. A list of other items is excluded — house rent allowance, conveyance, overtime — but if those excluded items together come to more than half of total remuneration, the excess is pulled back into wages. Structures built to keep basic artificially low run into that rule.

The earnings side

Basic — as above.

Dearness allowance — common in government and some older private structures. Counts as wages.

House rent allowance — only partly taxable if you actually pay rent. The exempt portion is the least of three amounts: the HRA you received, rent paid minus 10% of salary, and 50% of salary in one of the eight listed cities or 40% elsewhere. It is worth checking your own figures rather than accepting what payroll assumed, particularly if you rent in Bengaluru, Hyderabad, Pune or Ahmedabad — those four joined the 50% list from FY 2026-27.

Conveyance, medical, special allowance — the balancing items. Special allowance is usually whatever is left after the rest is assigned.

The deductions side

Provident fund — your share. Your employer contributes separately, and that contribution does not appear as a deduction because it was never in your gross.

Professional tax — a state levy, small, and it varies by state. Some states do not charge it.

Income tax (TDS) — deducted monthly against your estimated annual liability. If it looks wrong, it is usually because payroll is working from a declaration you filed months ago. That declaration is now Form 124, which replaced Form 12BB.

ESI — only below a wage threshold.

Loan or advance recovery — should be a named line, not folded into something vague.

What to check every month

• Does basic + DA match your offer letter?
• Are the days paid right, after any leave without pay?
• Is the PF roughly 12% of basic + DA?
• Does the net match what actually reached your bank?
• Is the TDS consistent month to month? A sudden jump usually means payroll updated its estimate.

When the payslip is not enough

A payslip proves what you were paid last month. It does not prove what you earn, which is why banks and consulates often ask for something more.

Usually that is a salary certificate — one letter on company letterhead stating the break-up, the gross, the deductions and the net, signed by someone authorised — or Form 130, the annual tax certificate. Which one a bank, a landlord or an embassy wants is set out in Salary Certificate, Salary Slip or Form 130?