A salary slip is defined as a document that is provided by your employer which contains the breakdown of your earnings, deductions, and other variables. Your monthly payslip will have the amount that is being paid to you and the deductions that will be made. This document is generated on a monthly basis, the employer hands over to you either over mail or a physical copy.
Importance of understanding the salary slip
As it is the legal proof your employer will give you acting as proof of your employability, it will help one understand the components and the salary associated with their position of responsibility. It helps you to fill your income tax returns, applying for loans, etc.
- Exploring opportunities: Your salary slip will play a pivotal role in having a raise or switching from one company to another, it acts as a negotiating factor between you and the employer.
- Tax Calculation: There are different tax treatments for different components in your salary slip. Knowing about these components will help you in encashing various benefits available for tax deductions, we will see in detail the various components of salary slip and how to avail the tax benefits from them.
Components of salary slip
The salary slip is generated every month, but do you really understand the format and the components associated with it? You need to learn about salary slip and then understand the terminologies and different variables that are included in your salary slip. Let’s not worry we will structurally break down the components and try to understand everything:
The deduction side
The professional tax, employee provident fund (EPF), tax deduction at sources (TDS) are the major components:
1. Professional tax: This is a small amount taxed by the state government by the earning professionals. The majority of the Indian states tax this amount to the individuals not only for the professionals but for individuals who earn a living. This deduction of the amount is from the taxable income. This amount is a very small amount, generally in a few hundred, which is majorly dependent on the gross tax slab of the individual.
2. Tax deducted at source (TDS): An amount the income tax department charges and is deduced by the employer. It has a similar criterion like professional tax, which is dependent on the gross tax slab of an employee. If you have invested in schemes like tax-saving FD, PPF, ELSS, NPS can reduce the amount paid to the tax department. As this comes under the 80C section of the Indian income tax, this increases your take-home salary. You can also invest in the mutual funds and submit the proof to your employer, further claiming the TDS returns.
3. Employee Provident Fund (EPF): This qualifies under section 80C of the Income Tax Act, this EPF goes to the contribution of an employee to the provident fund. This fund basically accumulates the amount for your retirement period. 12 percent of the basic salary of the employee goes to the EPF, the employer also makes a similar contribution towards the employee for their retirement. This whole process is governed and managed by the Employees’ Provident Fund Organisation.
The earning side:
1. Basic: This is the fixed component of your salary as the name suggests. This is usually the largest component of your salary. The fixed or basic salary defines your HRA furthermore, your PF is deducted as a percentage of your basic salary. The basics tend to be higher at the junior level. The salary in hand is 100 percent taxable to the employee.
2. House Rent Allowance: This allowance is for the individuals who live in rental houses or apartments. There is a partial or full exemption from taxes depending on the rental expenditure of the individual. If you do have HRA but you do not live on a rental basis then this component is fully taxable.
3. Conveyance Allowance: The amount of travel to and from the workplace by the employer to the employee. This allowance is generally exempt from tax until a limit so one can save on tax on this allowance. This appears on the earning side of the payslip.
4. Medical Allowance: For the medical expenses during the time of employment at a company, the employer provides an amount for the medical expenses for the employee. This amount is only received by the employee post presenting the medical bills to the employer as a proof. If the employee fails to provide the necessary certificates and bills, this amount shall be fully taxed. On the other hand, if the employee provides the proof of documentation the allowance is up to Rs. 15,000 that will be exempted from the tax.
5. Special Allowances: These allowances are performance-based allowances, they are generally given to the employees to derive motivation and better work. They are subject to companies and may be variable. These allowances are 100 percent taxable.
It’s most important to understand the salary slip for an individual, as it acts as a proof, credible source, helps in the background check, and many more cases. It also gives the growth trajectory of the individual for other employers. Salary also gives you the opportunity to get various loans, credit cards, and other borrowings.
SIMPLIFYING THE RETIREMENT FUND DEATH CLAIMS PROCESS
By Dolana Conco, Regional Executive at Alexander Forbes
Losing a loved one is one of the most difficult experiences a person can go through, and during this difficult time, you don’t want your loved ones to have to worry about finances.
Your family will receive a share of your retirement savings and a life insurance pay-out if you die while being a member of a retirement fund. The trustees of the fund have a legal responsibility to make sure that death benefits from the fund are paid to those who are financially dependent on you.
If your death benefit is through a policy that is separate to the fund, then the trustees will not be involved and this benefit will be paid out according to the nomination of beneficiaries’ form that you’ve completed with that specific insurer, or else your employer will decide.
What retirement fund members need to do
- Keep your ‘Who needs financial support when I die?’ form up to date
This form is so much more important than anyone thinks – even though it is not a last will and testament. The trustees must, by law, find all the people who are financially dependent on you, as well as those whom you love and would want to leave a portion of your death benefit to when you die. Those who depend on you for financial survival are called your dependants. Examples are your spouse or life partner, children (of any age), parents, people you need to pay maintenance to or anyone else in your life who depends on you financially.
If no one is financially dependent on you in any way, you can choose someone else as a beneficiary (family, friend, or even a charity). If you choose to give your death benefit to a charity when you die, the money will first be paid to your estate and then paid over to the charity of your choice. If this form is not up to date, it could take the trustees much longer to identify who should receive a share of your death benefit from the fund.
- Submit the correct documents
The most common reason for delays in paying an insured death claim is that there are missing, incomplete or incorrect documents submitted with the claim. Your employer can assist with what is needed and can check that the form has been completed fully and correctly before submission. In general, the following information is needed:
- a certified copy of the death certificate
- the identity document or passport of the deceased member
- a copy of a pension-backed housing loan (if applicable)
- proof of the extent of any financial dependency of the beneficiaries
What your retirement fund needs to do
The trustees of your fund have a legal duty when you die to distribute your death benefit from and through the fund. The trustees must find all dependants and nominees to decide how to share the retirement savings and life insurance pay-out fairly. To make a fair decision, the trustees will consider the following factors, among others:
- Age of the beneficiaries
- Relationship to the deceased
- How financially dependent they were on the deceased
- Their financial affairs
- Their future earning potential and prospects
- The total amount of the retirement saving to be distributed
The trustees can choose to give a beneficiary no pay-out, as the law doesn’t say that every beneficiary must get some money. However, they must consider the needs of each beneficiary and the amount available for distribution.
If there’s information that the trustees may not have considered when they made their decision and the draft resolution has already been prepared, your family needs to contact the trustees urgently. The fund’s administrators will pay the death claim once they get a response from all beneficiaries, or if no response has been received within 30 days of sending the draft resolution document.
There are various reasons for delays in paying a death claim from or through the fund, including the employer not completing the claim form in full, missing or incorrect documents, investigations for the trustee resolution taking longer than expected, outstanding tax issues and beneficiaries not providing their bank account details.
Make sure your family knows what can go wrong and what to do to make the process run smoothly – it all plays a part in leaving a legacy that you can be proud of.
THE COMPLETE GUIDE TO TRANSFERRING SHARES FROM ONE DEMAT ACCOUNT TO ANOTHER
A Demat Account functions like a savings bank account with the obvious difference in the fact it stores stocks instead of money. To be similar to a savings account also implies that a Demat Account can be used to transfer shares from one Demat Account to another Demat or trading account.
Shares are generally transferred from one Demat Account to another for the purpose of changing depositories. However, there can also be other reasons for transferring shares such as merging the investments in different Demat Accounts in a single Demat Account.
Whatever the reason, in order to understand how to transfer shares from Demat Account, it is important to first understand what is Demat Account.
What Is Demat Account?
The most simplified way of answering what is Demat Account is to understand it as a digital platform where investors can store all their shares and other forms of investment in an electronic form. Demat is a short form for dematerialization which refers to the process of converting physical share certificates into the electronic form. A Demat Account can only be opened with the help of a Depository Participant or DP and a depository. A DP is an agent or broker who acts as an intermediary between the depository and investor. A depository is a financial institution in which investors open their Demat Account. Read more about what is Demat Account to understand it in more thorough details.
It is necessary to know about Demat Accounts before attempting other things like transferring shares, etc.
How To Transfer Shares From Demat Account
After the meaning of what is Demat Account is cleared, it is time to understand how to transfer shares from Demat Account to another Demat Account. There are two types of transfer:
- Intra-depository transfer: In this type of transfer, shares are transferred from one Demat Account to another in the same depository.
- Inter-depository transfer: In inter-depository transfer, shares are conveyed from one Demat Account to another account which is in a different depository.
The two ways in which shares can be transferred are the manual procedure or online procedure.
Manual Transfer Of Shares
For the manual transfer of shares, investors are required to ask for delivery instruction slip or DIS from their brokers or DPs. DIS is not just an important but also an integral part of the manual transfer of shares. It contains some mandatory fields which have to be filled to process the transfer of shares.
1. Beneficiary Owner ID (BO ID)
Beneficiary owner ID (BO ID) refers to a 16-digit ID number of a broker. An investor has to mention in DIS the IDs of both the current broker and the broker to which the shares will be transferred.
2. International Securities Identification Number (ISIN)
International Securities Identification Number or as it is commonly known ISIN is a unique ID number appropriated to each share of an investor which he holds in a Demat Account. In order for the transfer to take place, ISIN has to be provided to designate which particular shares are to be transferred.
3. Inter or Intra
This is the distinctive part of DIS where an investor has to choose whether to make an intra-depository or inter-depository transfer. In the case of intra-depository transfer, the column denoted as ‘off-market transfer’ has to be selected. Whereas, in the case of inter-depository transfer, the column designated ‘inter-depository’ has to be selected. An investor should be extra careful while filling this part of DIS.
Little needs to be said about this part of DIS. Just like any other important document, DIS too needs to be signed. Once an investor has signed DIS, it should be submitted to the broker.
A broker may charge a small fee for the transfer of shares. It usually takes 3-5 business days for the shares to be transferred.
Online Transfer of Shares
Central Depository Services Limited (CDSL) has made the online transfer of shares a very easy process. All that an investor has to do is to follow these simple steps.
- The ‘Register Online’ option at the CDSL website has to be selected.
- There would appear an option called EASIEST which then has to be selected.
- A form would generate which accordingly has to be filled.
- Once the form fill-up is complete, a print out of the same has to be taken out. This print out is to be submitted to the account holder’s Depository Participant.
- The DP will verify the document and once the verification process is completed, a password will be generated.
Using this password, an investor can log in and transfer shares on his own.
Thus, the two ways in which shares can be transferred from one Demat Account to another is not at all complex and can be easily achieved through both manual and online procedure. With a proper understanding of what is Demat Account and how the transfer of shares takes place, an investor can effectively send the shares to another account either on his own or through the help of a DP.
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