It is that time of the year when important changes could affect the salaries of millions of employees across India, Yes we are talking about the new financial year, which is just around the corner.
Anticipated Changes In Salary Slip
While that being said, both the New Income Tax Act 2025 and the new Labour Code will come into effect from April 1, 2026.
This holds a significance as these changes are likely to bring noticeable differences in salary slipsespecially in the way basic pay and allowances are structured.
Several employees may notice a different break-up in their salary slip from April 1 and the biggest shift will be in the ratio between basic salary and allowances.
Coming to the companies, they will have to restructure pay components to comply with the new Labour Code rules.
Please note that their overall CTC may remain the same, only the distribution of salary components could look very different.
What To Expect?
Now, the companies must ensure that an employee’s basic salary is at least 50 percent of the total Cost to Company (CTC), as per the new Labour Code.
At present, several companies keep the basic salary low to reduce tax liability and increase allowances such as HRA, travel allowance and special allowance.
This happens to the extent that they keep allowances from 70 to 80 percent of the total salary.
But now, this practice will change as the total allowances cannot exceed 50 percent of the CTC, further may result in employers needing to increase the basic pay component.
If you are wondering about its impact on PF, Gratuity and Take-Home Salary then Provident Fund (PF) and gratuity are calculated based on basic salary.
So, if there would be any increase in your basic pay then your contribution to PF will also rise, meaning your retirement savings will grow faster over time.
But there is a downside too as a higher PF deduction could slightly reduce your take-home salary and the actual impact will depend on your existing salary structure.
This can be easily understood with an example, for instance your CTC is Rs 50,000 and your basic salary is already Rs 25,000 (50 percent), then there may be no change in your in-hand salary.
Now consider, your basic pay is only Rs 10,000 and the remaining Rs 40,000 is listed as allowances then now your company will have to increase your basic pay, in turn your monthly take-home salary may reduce slightly.
Please note here that an increase in basic salary can also influence tax calculations, especially under the old tax regime.
This would also affect the House Rent Allowance (HRA) exemption which is linked to basic salary as if the basic component rises, the taxable portion of HRA may increase, reducing overall tax benefits.
For the employees, who are earning between Rs 10 lakh and Rs 30 lakh annually and living in metro cities may still benefit from deductions under Section 80C and NPS if they continue with the old regime.
On the other hand, if you are choosing the new tax regime then the impact is limited as the Income up to Rs 12.75 lakh annually is tax-free, including the Rs 75,000 standard deduction.
As we know that the exemptions like HRA are not available under the new regime, so the changes in basic salary are unlikely to significantly affect tax liability.
What Is Advised To The Employees?
To start with, the employees should review their salary structure and speak with their HR departments if needed.
Although their take-home pay may slightly decrease for some, the long-term benefit of higher retirement savings could balance the impact.
So, April 1 holds a significance as it will not only begin a new financial year but it may also bring a noticeable shift in how your salary is calculated and structured.
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