New Wage Code From April 1: Salary Structure To Change, Take-Home Pay May Drop

Basic salary rule to impact PF, gratuity and tax; long-term savings likely to increase

Starting April 1, 2026, major changes in salary structure are set to come into effect as the new Labour Code and updated income tax rules are implemented. These changes are expected to directly impact salaried employees’ take-home pay, retirement savings, and tax calculations.

Basic Salary Must Be 50% Of CTC

One of the biggest changes is that the basic salary will now have to be at least 50% of the total Cost to Company (CTC).

Currently, many companies keep the basic salary low and increase allowances such as HRA, travel allowance, and special allowances to optimise taxes. Under the new rules, allowances cannot exceed 50% of total salary, forcing companies to increase the basic pay component.

Impact On Take-Home Salary

With an increase in basic salary, contributions towards Provident Fund (PF) and gratuity will also rise, as both are calculated based on basic pay.

This means employees may see a reduction in their monthly take-home salary due to higher deductions. However, the overall retirement corpus is expected to grow significantly over time.

PF And Gratuity To Increase

Higher PF contributions will strengthen long-term savings for employees. Gratuity payouts will also increase, benefiting employees at the time of retirement or job exit.

Experts say this shift focuses more on financial security in the long run rather than immediate cash in hand.

Tax Impact: Old Vs New Regime

The new structure may affect tax calculations differently depending on the tax regime chosen.

For those under the old tax regime, an increase in basic salary may reduce HRA exemptions, potentially increasing tax liability.

However, under the new tax regime, these changes will have minimal impact, as most allowances and deductions are not applicable.

Employees earning up to ₹12.75 lakh annually under the new regime may continue to benefit from tax relief, including standard deductions.

What Employees Should Do

With the new rules bringing more transparency to salary structures, employees may need to reassess their tax planning and investment strategies.

Choosing between the old and new tax regimes will become more important depending on individual expenses such as home loans, rent, and investments.

A Shift Towards Long-Term Security

While the immediate impact may be a dip in take-home salary, the new wage code aims to strengthen financial stability through higher savings and retirement benefits.

As these changes roll out, employees are advised to review their salary structure and plan finances accordingly.

Disclaimer: Salary impact may vary based on employer policies and individual tax choices. Readers should consult financial experts for personalised advice.