New Labor Law: Good News For You! In hand salary will not decrease but will increase! Here, understand how the calculation will be done in the salary structure?

New Wage code latest news: When will the new labor laws become a reality? Since when is this question in people’s mind? Especially people want to know that after its implementation, what will be the effect on their salary and how the salary structure will change.

However, a formal announcement is yet to be made. But, there is speculation that it can be implemented in the coming months. The matter is that whenever it is implemented, the biggest change will be seen in the salary structure. Till now you must have heard that your in hand salary will be reduced in the salary structure with the coming of new labor law. Because, the basic salary will be 50%.

This will cut more money into the retirement fund. The huge amount of allowances will be reduced. Now here is the twist. Even after the new salary structure comes, your in hand salary will not decrease but will increase. Let’s understand how…

Basic salary will be 50%

First understand that the government has prepared 4 new labor codes by adding 29 labor laws. According to the provisions of the new law, the basic salary will be 50% of the total salary (CTC) in the salary that companies will pay to their employees. This means that the basic salary which used to be 30-35 percent earlier, will be increased by 15 percent directly and the reimbursement-allowance part will remain 50 percent.

What is in the current salary structure?

Suppose your monthly salary is an annual package of Rs 1.5 lakh i.e. Rs 18 lakh. In the current salary structure, the basic salary is 32% of the CTC. In this sense, in the monthly CTC of 1.50 lakh, the basic salary will be Rs 48,000. Then 50 percent i.e. Rs 24,000 HRA then 10% of basic (Rs 48,000) in NPS i.e. Rs 4,800 will go. 

If 12% of the basic salary goes to the Provident Fund (PF), then Rs 5,760 will go to the EPF every month. In this way your monthly CTC of Rs 1.50 lakh has become Rs 82,560. This means that the remaining Rs 67,440 is being given through other items. These include components like special allowance, fuel and transport, phones, newspapers and books, monthly share in annual bonus, gratuity.

Whose share in the current salary structure

How much tax is made, how much is the salary in hand and how much is retirement savings?

• Out of your total CTC, Rs 1.10 lakh will be taxed. That means 6.14 percent tax of CTC.
• Take home salary – Rs 1.14 lakh, 76.1 percent of CTC.
• Retirement savings – Rs 1.96 lakh, totaling 10.9 percent of CTC.

With the implementation of the New Wage Code, there will be a change in the salary structure of the employees. Think of it like this-

How much tax, how much salary in hand and how much will be retirement savings?

• Out of your total CTC, Rs 1.19 lakh will be taxed. That means 6.6 percent tax of CTC.
• Take home salary – Rs 1.06 lakh, 70.4 percent of CTC.
• Retirement savings- Rs 3.06 lakh, 17 per cent of the total CTC.
• In the new structure, your annual retirement savings will be Rs 3.06 (17% of CTC) as against Rs 1.96 lakh (10.9% of CTC) earlier. Meaning, your annual retirement savings will increase by Rs 1.10 lakh under the new structure.

HRA will get less tax exemption

According to the new rule, suppose the annual basic salary is Rs 9 lakh, then the HRA will be Rs 4,50,000. But, you will get tax exemption only on the exemption of Rs 2,42,400. Meaning tax will have to be paid on Rs 2,07,600. Earlier, you had to pay tax on only Rs 45,600 received under the head of HRA. There is going to be a huge increase in tax on HRA in the new salary structure. If you compare the tax on annual CTC, now you have to pay tax of 1.10 lakh (6.1% of total CTC), which will be Rs 1.19 lakh (6.6% of total CTC) in the new structure.