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 scan it for one number — the final credit — and ignore the rest. That habit costs people real money. A wrong state on the professional tax line, EPF calculated on full basic instead of the ceiling, ESI deducted when your gross crosses ₹21,000 — these are errors that slip through payroll systems every month.
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 your salary structure. Typically 35–50% of CTC for mid-level employees, though this varies by employer and industry [VERIFY: no statutory requirement for the percentage].
Basic matters for three reasons:
- EPF is calculated as 12% of basic (with a ceiling)
- Gratuity is calculated on basic + DA
- HRA exemption is partly based on basic salary
A high basic sounds good. But it increases your EPF deduction and can push you into a higher tax bracket faster if allowances are lower. Companies sometimes keep basic low deliberately to reduce their own EPF outgo.
House Rent Allowance (HRA)
HRA is the allowance your employer pays toward rent. For metro employees, HRA is typically 50% of basic. For non-metro, it’s 40% of basic — though employers can structure it differently.
Under the old tax regime, a portion of HRA is exempt from tax. The exempt amount is the lowest 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 does not apply. The entire HRA is taxable.
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. This is the balancing figure that adds up to your gross salary. It’s fully taxable under both regimes — there’s no exemption for “special allowance” as a category.
This line tends to be large for companies that keep basic low. A ₹15 LPA employee with 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 for salaried employees in the 2018 budget — it got folded into the standard deduction. Some old payslips still show “Conveyance ₹1,600” as a named component, but it’s fully taxable now. If yours does, it’s historical naming, not a live exemption.
Medical Allowance
Similarly, the ₹15,000/year medical reimbursement exemption (under the old regime) was removed in 2018 and folded into the standard deduction. A payslip line labelled “Medical Allowance” is fully taxable. Don’t confuse it with reimbursements for actual medical bills submitted with receipts — those are handled separately through the reimbursement system, not the payslip.
Leave Travel Allowance (LTA)
LTA is real money — but it’s conditional. You can claim LTA exemption for domestic travel (air, rail, or bus) for yourself and your family, twice in a block of four calendar years. The current block is 2022–2025 [VERIFY: confirm block year for 2026].
LTA appears on your payslip as a fixed annual component. But the tax exemption only applies when you actually travel and submit proofs. If you don’t travel in the block period, the full LTA amount is added to your taxable income.
Most employees in the new regime skip this entirely since LTA exemption doesn’t apply 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 can push that month’s salary deduction much higher than usual. That’s expected — it’s not an error.
The Deductions Side
These are the amounts subtracted from your 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 higher. So the maximum employee EPF deduction is ₹1,800/month (12% × ₹15,000) [VERIFY: ceiling has been ₹15,000 since 2014, confirm no revision for FY 2026-27].
The common payslip error: Some employers calculate EPF on the actual basic without applying the ₹15,000 ceiling. If your basic is ₹40,000/month and your employer deducts ₹4,800 (12% of ₹40,000) instead of ₹1,800 (12% of ₹15,000), you’re over-contributing. Your employer is not obligated to cap it — you can choose to contribute on actual basic — but they must not exceed the ceiling without your consent [VERIFY: EPFO circular on voluntary higher contributions].
Your EPF contribution earns 8.25% interest per year [VERIFY: EPFO rate for FY 2025-26] and is exempt from tax under Section 80C (old regime only, up to the ₹1.5L overall limit).
Professional Tax (PT)
A state-level deduction. Ranges from ₹0 to ₹208/month depending on which state your employer is registered in.
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.
The common payslip error: Your payslip shows the state where your employer’s registered office or payroll is processed — not where you physically work. If you’re a remote employee hired by a Delhi-registered company but living in Karnataka, your payslip may correctly show ₹0 PT (because your employer’s payroll state is Delhi). This is not an error. See our Professional Tax guide for state-by-state rates.
Calculate your exact PT with our Professional Tax Calculator.
TDS (Tax Deducted at Source)
TDS is the monthly income tax deduction your employer makes on your behalf. At the start of the financial year, you declare your tax regime and deductions (investments, rent, etc.) to your employer. They estimate your annual tax liability and divide it by 12 to deduct monthly.
Why TDS fluctuates:
- You change your declared deductions mid-year
- A bonus is paid in one month
- You didn’t submit proofs by the deadline, so deductions lapsed
If too little TDS was deducted through the year, you’ll owe the balance when you file your ITR in July. If too much was deducted, you get a refund — but refunds take time. Getting TDS right upfront is worth the effort.
ESI (Employee State Insurance)
ESI applies only if your gross salary is ₹21,000/month or less. Your employee contribution is 0.75% of gross. Your employer contributes 3.25%.
If your gross crosses ₹21,000, ESI stops for that contribution period. It restarts only at the beginning of the next contribution period (April or October) if your gross has fallen back below the threshold [VERIFY: exact period reset rules under ESIC Act].
The common payslip error: ESI continues to be deducted after a salary hike pushes gross above ₹21,000. This happens when payroll systems are not updated mid-year. If your gross salary is above ₹21,000 and ESI is still appearing as a deduction, flag it with your HR team.
Employer Contributions (On Your Payslip but Not Your Money)
This section trips up a lot of employees. Some payslips show employer contributions alongside your earnings to make the CTC visible. These numbers appear on paper but are not paid to you — they go to statutory accounts or provisions.
Employer PF (12% of basic, capped at ₹15,000 basic)
Your employer contributes the same 12% of your basic (capped at ₹15,000) to your EPF account. But of this 12%, only 3.67% goes into your EPF account. The remaining 8.33% goes to EPS (Employee Pension Scheme) [VERIFY: standard EPS contribution split].
On your payslip or CTC letter, “Employer PF” might show the full 12%. But the amount you can actually withdraw when you leave the job is only the employee EPF + employer EPF contribution (not the EPS portion, unless you’ve vested 10 years of service).
Employer ESI (3.25% of gross, only if gross < ₹21,000)
Your employer’s share. It’s part of your CTC but not paid to you — it goes to the ESIC fund which covers your hospitalisation, maternity benefits, and disability benefits.
Gratuity Provision (4.81% of basic)
Gratuity is paid to you after 5 years of continuous service. Employers often include a monthly gratuity provision in the CTC — typically 4.81% of basic (derived from the Payment of Gratuity Act formula: 15 days’ basic per year of service, calculated as basic/26 × 15 × years).
This is an accounting provision, not cash. You see it in your CTC letter and sometimes on payslips that show CTC reconciliation. You receive the lump sum only when you leave after completing 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 will depend 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 be different from where you work. The deduction should match the state where your employer is registered for PT purposes, not where you sit. Errors happen after inter-office transfers or remote-work arrangements. A Karnataka employee being charged Maharashtra PT (₹200/month instead of ₹200/month — same amount, but wrong jurisdiction) may seem harmless, but it creates compliance issues for the employer.
2. EPF on full basic above the ceiling
If your basic is above ₹15,000/month and your employer deducts EPF on the full basic (rather than capping it at ₹15,000), check whether this was a voluntary election or a payroll error. Over-contributing to EPF locks your money for longer and reduces take-home.
3. ESI deducted when gross > ₹21,000
If your gross salary crosses ₹21,000/month after a hike and ESI is still appearing, that’s a payroll processing lag. You and your employer are both paying into a fund you’re no longer eligible for that period. 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 account. It’s part of your CTC but classified as an employer contribution — it shows on payslips that display a full CTC reconciliation. You can check your EPF balance via the EPFO member portal (passbook.epfindia.gov.in) at any time.
Q: The TDS deducted each month is different. Is that normal?
Yes. TDS can vary month to month when your employer recalculates projected annual tax based on updates you give them — or when a bonus is paid. Large jumps in Q3 and Q4 are common because many employees submit investment proofs late or not at all.
Q: Can I ask my employer to restructure my salary to reduce tax?
Yes, within limits. Common restructuring options include food coupons (Sodexo/Zeta), NPS employer contribution under Section 80CCD(2), and telephone/internet reimbursements. These are taxable allowances that can be converted to reimbursements in some structures. Talk to your HR or a tax advisor before restructuring.
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