In hand salary likely to be reduced after new wage code implementation

After the second wave of Corona, several companies raised salaries. Therefore, there is an atmosphere of happiness among the employees. This is important news for you if you think that increase in salary will increase take home salary. Your take home salary may be reduced after the new wage code is implemented. At the same time, the tax burden on you may increase. There are three to four key components to any employee's cost to company (CTC). The CTC includes retirement benefits like basic salary, house rent allowance, PF, gratuity and pension and tax saving allowances i.e. LTA and Entertainment Allowance. According to the new wage code, the allowance in the total salary cannot be more than 50 per cent in any case.

If the salary of an employee is Rs. 50,000, his basic salary should be Rs. 25,000 and the remaining Rs. 25,000 should include all his allowances. At present, many companies keep the basic salary at 25 to 30 per cent and include the rest in allowances. But now these companies will not be able to keep the basic salary less than 50 per cent. Allowances also have to be reduced while implementing the new Wage Code rules.

Provident fund and gratuity are directly related to basic salary. As the basic salary increases, so will the provident fund and gratuity. This will reduce the take home salary of the employees. However, with the increase in provident fund and gratuity, the amount received after retirement will increase.