How to Read Your Salary Payslip (India)
Your payslip has 15-20 line items. Here is exactly what each one means, what counts as income, what gets deducted, and three mistakes that quietly cost employees thousands every year.
Your payslip is a financial document. Most employees look at one number — the final credit to their account — and ignore the rest. That habit costs real money.
A wrong state on the professional tax line. EPF calculated on the full basic instead of the ₹15,000 ceiling. ESI still getting deducted after your gross crossed ₹21,000. These errors slip through payroll systems every month, across companies of all sizes. And they don’t get flagged unless you read the payslip.
This guide explains every line on a standard Indian payslip — what it means, how it’s calculated, and when to push back.
The Earnings Side
Your payslip is split into two halves. Earnings first.
Basic Salary
Basic is the foundation of the entire salary structure. Typically 35–50% of CTC for mid-level employees, though there’s no statutory requirement for any specific percentage [VERIFY: no mandatory percentage under Indian labour law — employer discretion].
Basic matters for three reasons:
- EPF is calculated as 12% of basic (with a ceiling at ₹15,000/month)
- Gratuity is calculated on basic + dearness allowance
- HRA exemption (under the old regime) is partly based on basic salary
A higher basic sounds good on paper. But it increases your EPF deduction and can affect your take-home. Companies sometimes keep basic low deliberately — to reduce their own EPF contribution and gratuity provision. That saves them money and costs you retirement benefits.
House Rent Allowance (HRA)
HRA is the allowance your employer pays toward rent. For metro employees, it’s typically 50% of basic. For non-metro, 40% — though employers can structure it differently.
Under the old tax regime, a portion of your HRA is exempt from tax. The exempt amount is the minimum of:
- Actual HRA received
- 50% of basic (metro) or 40% of basic (non-metro)
- Actual rent paid minus 10% of basic
Under the new tax regime, HRA exemption doesn’t apply. The entire HRA is added to your taxable income.
Use our HRA Calculator to see exactly how much of your HRA is exempt.
Special Allowance
Whatever’s left after Basic, HRA, and other named allowances goes here. It’s the balancing figure. Fully taxable under both regimes — there’s no exemption for “special allowance” as a category.
This line tends to be large when companies keep basic low. A ₹15 LPA employee with a 35% basic structure might have a special allowance of ₹3–4 lakh per year.
Conveyance Allowance
Under the old regime, ₹1,600/month (₹19,200/year) was exempt from tax as transport allowance. This exemption was removed in the 2018 budget — it got folded into the standard deduction. Some payslips still show “Conveyance ₹1,600” as a named component out of habit, but it’s fully taxable now. If yours does, it’s historical payroll naming — not a live exemption.
Medical Allowance
The ₹15,000/year medical reimbursement exemption under the old regime was also removed in 2018 and folded into the standard deduction. A payslip line labelled “Medical Allowance” is taxable. Don’t confuse it with actual medical reimbursements submitted through your HR expense system — those are handled separately and are not the same thing.
Leave Travel Allowance (LTA)
LTA is real money, but it comes with conditions. You can claim LTA exemption for domestic travel (air, rail, or bus) for yourself and your family, twice within a block of four calendar years. The current block is 2022–2025 [VERIFY: confirm block period for FY 2026].
LTA appears on your payslip as a fixed annual component. The tax exemption only applies when you actually travel and submit proofs. If you don’t travel during the block period, the full LTA amount is taxable.
Most employees on the new regime skip this — LTA exemption isn’t available there.
Performance Bonus / Variable Pay
Shown separately from fixed salary. Usually paid once or twice a year. Fully taxable. Your employer deducts TDS in the month they pay it, which spikes that month’s deduction significantly. That’s not an error — it’s the system working as intended.
The Deductions Side
These are the amounts subtracted from gross earnings to arrive at net pay.
EPF (Employee Provident Fund)
Your contribution: 12% of your basic salary.
But there’s a ceiling: EPF is calculated on a maximum basic of ₹15,000/month. Even if your actual basic is ₹60,000/month, the statutory EPF deduction caps at ₹1,800/month (12% × ₹15,000) [VERIFY: ceiling has been ₹15,000 since 2014 — confirm no revision for FY 2026-27].
Common payslip error: Some employers calculate EPF on the actual basic without applying the ceiling. If your basic is ₹40,000 and your employer deducts ₹4,800 instead of ₹1,800, check whether this was a voluntary election by you or a payroll processing error. Over-contributing to EPF isn’t illegal — but it locks money for longer and reduces your take-home [VERIFY: EPFO rules on voluntary higher contribution vs statutory limit].
Your EPF balance earns 8.25% interest per year [VERIFY: EPFO interest rate for FY 2025-26]. Under the old regime, it qualifies for Section 80C deduction up to the ₹1.5L limit.
Professional Tax (PT)
A state-level deduction. Ranges from ₹0 to ₹208/month.
States with no PT: Delhi, Rajasthan, Haryana, Uttar Pradesh, Punjab, Himachal Pradesh, Uttarakhand, and several others.
States with PT: Maharashtra (up to ₹2,500/year), Karnataka (up to ₹2,400/year), West Bengal, Tamil Nadu, Gujarat, Andhra Pradesh, Telangana, and more.
Common payslip error: Your payslip shows the PT based on your employer’s registered payroll state — not where you physically work. A remote employee hired by a Delhi-registered company but living in Karnataka may correctly see ₹0 PT. This is not an error. See our full Professional Tax guide for the state-by-state breakdown.
Calculate your exact PT with our Professional Tax Calculator.
TDS (Tax Deducted at Source)
TDS is the monthly income tax your employer deducts on your behalf. At the start of the financial year, you declare your tax regime and eligible deductions. Your employer estimates your annual tax liability and spreads it across 12 months.
Why TDS changes month to month:
- You update your declared deductions mid-year
- A bonus is paid in one particular month
- You missed the investment proof deadline, so deductions lapsed
If TDS was underpaid through the year, you’ll owe the balance when you file your ITR in July. If it was overpaid, you get a refund — but refunds take time. Getting TDS calibrated early in the year saves you the hassle.
ESI (Employee State Insurance)
ESI applies only if your gross salary is ₹21,000/month or less. Employee contribution: 0.75% of gross. Employer’s share: 3.25%.
Once your gross crosses ₹21,000, ESI stops for that contribution period. It restarts only at the beginning of the next ESIC contribution period (April or October) if your gross has dropped back below the threshold [VERIFY: exact period reset rules under the ESIC Act].
Common payslip error: A salary hike pushes gross above ₹21,000, but payroll isn’t updated mid-period. ESI continues getting deducted even though you’re no longer eligible. If your gross is above ₹21,000 and ESI still appears on your payslip, flag it with HR.
Employer Contributions (On Your Payslip, Not Your Money)
This section trips up a lot of employees. Some payslips show employer contributions alongside earnings to make the CTC visible. These figures appear on paper — they are not credited to your bank account.
Employer PF (12% of basic, capped at ₹15,000 basic)
Your employer contributes the same 12% of your basic (with the same ₹15,000 ceiling). But of that 12%, only 3.67% goes into your actual EPF account. The remaining 8.33% goes to EPS (Employee Pension Scheme) [VERIFY: standard EPS contribution split under EPFO rules].
You can withdraw your EPF contributions when you leave. The EPS portion works differently — it vests only after 10 years of cumulative service across employers.
Employer ESI (3.25% of gross, only if gross < ₹21,000)
Goes to the ESIC fund, which covers hospitalisation, maternity benefits, and disability. Part of your CTC — not your bank account.
Gratuity Provision (4.81% of basic)
Employers include a monthly gratuity provision in CTC — typically 4.81% of basic. This is an accounting entry. You receive the lump sum only when you leave after 5 years.
Net Pay vs Gross Pay vs CTC
Here’s how the numbers connect:
| Term | What It Means |
|---|---|
| CTC | Everything your employer spends on you (including employer PF, gratuity, insurance) |
| Gross Salary | CTC minus employer contributions — what appears as “earnings” on your payslip |
| Net Pay / Take-Home | Gross salary minus all employee deductions (EPF, PT, TDS, ESI) |
Example: ₹15 LPA Payslip
| Component | Monthly (₹) | Annual (₹) |
|---|---|---|
| EARNINGS | ||
| Basic Salary | 50,000 | 6,00,000 |
| HRA | 25,000 | 3,00,000 |
| Special Allowance | 33,750 | 4,05,000 |
| LTA | 4,167 | 50,000 |
| Gross Salary | 1,12,917 | 13,55,000 |
| DEDUCTIONS | ||
| Employee EPF | 1,800 | 21,600 |
| Professional Tax (MH) | 200 | 2,400 |
| TDS | 8,500 | 1,02,000 |
| Net Pay | 1,02,417 | 12,29,000 |
| EMPLOYER CONTRIBUTIONS | ||
| Employer EPF | 1,800 | 21,600 |
| Gratuity Provision | 2,404 | 28,846 |
| Medical Insurance | 1,250 | 15,000 |
| Total CTC | 1,07,871 | ~15,00,000 |
Numbers are illustrative. Your actual TDS depends on your tax regime and declared investments. Use the CTC Salary Calculator for exact numbers.
Three Payslip Errors Worth Checking
1. PT applied for the wrong state
Your employer’s payroll state may not match where you work. After remote-work arrangements or inter-office transfers, the payroll state sometimes doesn’t update. Karnataka employee being charged Maharashtra PT (both ₹200/month, so the amount looks right) — but the jurisdiction is wrong, which creates compliance issues for the employer.
2. EPF on full basic above the ceiling
If your basic is above ₹15,000/month and EPF is being deducted on the full amount rather than capped at ₹15,000, check whether you elected this voluntarily. Over-contributing to EPF reduces take-home and locks that money for years.
3. ESI deducted when gross > ₹21,000
If your gross crossed ₹21,000 after a hike and ESI still appears as a deduction, that’s a payroll lag. Both you and your employer are contributing to a fund you’re no longer eligible for. Flag it.
Frequently Asked Questions
Q: My payslip shows “Employer PF” of ₹1,800 as an earning. But that money isn’t in my bank account. Where does it go?
It goes to your EPF account at the EPFO, not your bank. It’s part of CTC that your employer contributes directly. You can check your EPF balance anytime via the EPFO member portal at passbook.epfindia.gov.in.
Q: The TDS deducted each month is different. Is that normal?
Yes. TDS recalculates whenever your employer revises the projected annual tax — which happens when you update declarations, when a bonus is paid, or when Q4 investment proofs come in late. Large swings in March are especially common.
Q: Can I ask my employer to restructure my salary to reduce tax?
Yes, within limits. Common options include food coupons (Sodexo/Zeta), NPS employer contribution under Section 80CCD(2), and telephone or internet reimbursements. Talk to your HR team or a tax advisor — the rules around which allowances can be reimbursed vs taxed as cash differ by employer and by the income tax department’s current interpretation.
Related Reading
- CTC vs In-Hand Salary: Complete Guide for Indian Employees — how to calculate exactly what lands in your account from your CTC number
- Professional Tax Rates in India 2026 — state-wise PT slabs so you know if your payslip deduction is correct
- HRA Exemption Calculation 2026-27 — how to calculate your HRA tax exemption and whether the old regime is worth it for you