Payroll items: the allowances and deductions you can use

A payroll item is one named line on a payslip: House rent, Meal, Staff fund. Create each item once with its tax treatment and kind; later you decide who gets it and how much. Each item gets its own ledger.

HR & payroll Payroll setup
3 min read
Updated October 20, 2026

For Payroll officer Accountant Administrator

On this page

The idea
Add an item
What the item gets
Rates for variable items

The idea

Everything on a payslip other than basic salary, PF, CIT, gratuity, tax and loans is a payroll item: an allowance (adds pay) or a deduction (takes pay). You define the item once, here. Where it applies and how much comes later (Allowances and deductions: by designation and by employee, Extra income and deduction: one-off items, PF loan, medical discount, previous income).

Open Payroll setup (Payroll › Settings) and the Payroll item tab.

Add an item

Press Add
Who
Payroll officer
Where
Payroll setup › Payroll item › Add
What changes
The form opens.
Name it
What changes
Enter an Item name and an Item code. The code is saved in capitals. Both must be new: a repeated name or code is refused.
Choose the Group
What changes
Allowance or Deduction. This choice cannot be changed once the item is used on a designation, an employee or an extra-income entry.
Choose the Tax rule
What changes
How the item counts for tax (the list changes with the group). For allowances: not taxable, taxable, or TDS-able. For deductions: one that reduces taxable income, or one taken after tax. Ask your accountant which applies.
Choose the Item category
What changes
Regular items are part of every month's pay. Occasional and Attendance based items are entered month by month under Other income and deduction. A Special category also exists. Deductions have fewer categories than allowances.
Mark a Variable type if the amount changes every month
What changes
Tick the box in front of Variable description and give the unit (for example litres). The amount is the quantity times a Rate you set each month (Allowances and deductions: by designation and by employee).
Choose Apply Leave Impact on Payroll Head if the item should shrink when the employee is absent
What changes
Only regular allowances can.
Save
What changes
The item is listed and can be given to designations and employees.

Worked example: three items a company might create

On Payroll setup › Payroll item › Add. The Tax rule is the accountant's choice for each item; the example uses the ones shown.

Item name	Item code (as typed, then saved in capitals)	Group	Tax rule	Item category	Variable type	Apply Leave Impact on Payroll Head
Meal allowance	meal, saved as MEAL	Allowance	Taxable	Regular	No	Ticked
Fuel allowance	fuel, saved as FUEL	Allowance	Taxable	Regular	Yes, unit "litres"	Not ticked
Staff welfare fund	welfare, saved as WELFARE	Deduction	The one taken after tax	Regular	No	Not available: only regular allowances can use it

What each save makes happen:

Each item gets an accounting ledger with its own name, under the Allowance group or the Deduction group chosen on Payroll configuration. Set those two groups first, or the item is made without a ledger.
The Fuel allowance has no amount of its own. On Allowance, a designation gives it a Value of 20 (litres). On Variable allowance rate, HR adds the item, the Effective month and a Rate of 150. The month then pays 20 × 150 = 3,000. In a month with no rate the item pays 0.

What the item gets

When you save a new item, Penahak creates an accounting ledger with the same name under the Allowance group or Deduction group you chose on Payroll configuration. The payroll journal posts each item to its ledger (What payroll posts to Accounting). Renaming the item renames the ledger.

Rates for variable items

A Variable allowance rate is the price per unit for one month. Open the Variable allowance rate tab, press Add, choose the item, the Effective month and the Rate. Set it before each month's pay run; a month with no rate pays 0 for that item. A rate for the same item and month cannot be entered twice.