For many employees, April salaries arrive with a sense of anticipation. It marks the beginning of a new financial year, when most companies roll out annual appraisals and reflect revised salaries in April payouts.
However, this year, it is not just about whether the hike meets expectations. The New Wage Code and income tax reforms could also significantly influence take-home pay, tax deductions, and overall salary structures.
Employers are restructuring salary components, revising exemptions, and recalculating tax deductions in line with the evolving regulations.
In many cases, employees may notice that even with a higher CTC, the monthly take-home salary does not rise as much as expected.
One of the biggest reasons for this is the New Wage Code’s requirements for companies to restructure the salary structure so that basic pay and dearness allowance together account for at least 50 per cent of total wages.
While this strengthens long-term benefits such as provident fund contributions and gratuity payouts, it can also increase monthly PF deductions, resulting in stronger retirement savings but lower in-hand salary each month.
The New Wage Code is also prompting organisations to reassess the balance between fixed salary, allowances, and reimbursements. As companies revise compensation structures to remain compliant, many employees may notice changes in how allowances are distributed within their salary breakup. At the same time, HRA exemption benefits, earlier limited to metro cities, have been extended to cities such as Pune, Ahmedabad, Bengaluru, and Hyderabad under the old tax regime. Eligible employees in these cities can now claim up to 50 per cent of their salary as HRA exemption. As a result, employees paying high rent should reassess whether the old tax regime offers better tax savings.
April is also when employers reset tax deduction calculations for the new financial year. At the same time, ongoing income tax reforms are influencing how companies manage payroll declarations and TDS calculations. Many employers now automatically place employees under the new tax regime unless an alternative is selected. While the new regime offers lower tax rates, it removes several exemptions and deductions that salaried professionals have traditionally relied on.
For employees with limited investments or income less than ₹12 lakh, the new regime may work well. But for those paying significant rent, repaying home loans, or claiming deductions under sections like 80C and medical insurance, the old regime may still offer better overall savings.
Beyond the major salary components, the New Wage Code and revised tax provisions are also prompting companies to revisit reimbursement structures and allowance limits. Education allowance, hostel allowance, meal benefits, fuel reimbursements, driver allowance, and corporate gift benefits are becoming more flexible in some organisations. However, the actual benefit still depends on company policy, tax regime selection, and proper documentation under income tax provisions.
While revised salary structures may improve retirement benefits, they can also reduce monthly in-hand pay. Choosing the right tax regime is equally important, as it directly impacts TDS and overall annual tax liability.
Before finalising salary declarations or selecting a tax regime, employees should review their revised salary structure, compare the old and new tax regimes, and assess eligible exemptions and deductions to make informed financial decisions. A well-informed decision today can significantly improve both monthly cash flow and long-term financial security.
The author is the chief of HR operations, staffing and payroll at Core Integra.
Opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.
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