In hand salary will decrease, more tax will be deducted due to 50% of basic, allowance money will be reduced… You must have heard many such things, when it comes to new wage code. Not implemented yet. But, on the basis of basic information, it has been assumed that the pockets of the jobbers will be affected.
The date of implementation of the new wage code has not been revealed yet. But, it is being discussed for the last two years. It is certain that there will be a change in your salary after its implementation. But, it is important to understand how what will happen in the salary structure.
What is the ruckus about salary in new wage?
The central government has created 4 new labor codes by combining 29 labor laws. They have been named as New Wage Code. There is a provision in the wage code that the basic salary will be 50 percent of the total salary (CTC) in the salary that companies will give to their employees. At present, the basic salary is between 30-35%. In the current structure, the reimbursement (allowance) part is more. There are allowances like Leave Travel Allowance (LTA), overtime and Conveyance allowance.
How to understand your salary structure?
Suppose the monthly CTC (Cost to Company) of an employee doing a job is Rs 1.5 lakh i.e. the annual package is Rs 18 lakh and you can claim maximum tax exemption of Rs 1.50 lakh on investment under section 80C. If the company is giving you the benefit of National Pension Scheme (NPS) under section 80CCD(2), then according to the rules, 10% of the basic salary goes to NPS and it is tax free.
Now understand how to get in hand money-
In the current salary structure, the basic salary is 32% of the CTC. In this context, the basic salary in the monthly CTC of 1.50 lakhs will be Rs 48,000. Then 50 percent i.e. Rs 24,000 HRA then 10% of Basic (Rs 48,000) i.e. Rs 4,800 will go to NPS. If 12% of basic salary goes to Provident Fund (PF), then Rs 5,760 will go to EPF every month.
In this way, your monthly CTC of Rs 1.50 lakh has become Rs 82,560. It means that the remaining Rs 67,440 is being given through other items. These include components like special allowance, fuel and transport, phone, newspapers and books, monthly share in annual bonus, gratuity.
How much will be the in hand salary, how much tax will be deducted?
– Out of your total CTC, Rs 1.10 lakh tax will be made. Means only 6.14 percent of CTC will go to tax.
Take home salary will be Rs 1.14 lakh. 76.1 percent of the total CTC is in hand salary.
Retirement savings – Rs 1.96 lakh, totaling 10.9% of CTC.
What will change in the new structure, how much money in which part?
Out of your total CTC, Rs 1.19 lakh tax will be made. Means 6.6% tax of CTC.
Take home salary – Rs 1.06 lakh, 70.4% of CTC.
– Retirement Savings – Rs 3.06 lakh, totaling 17% of CTC.
Under the new structure, your annual retirement savings will be Rs 3.06 lakh (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 in the new structure.
Tax burden will increase in HRA
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 rebate of Rs 2,42,400. Means tax will have to be paid on Rs 2,07,600. Earlier, you had to pay tax only on Rs 45,600 you get as 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, then now you have to pay tax of Rs 1.10 lakh (6.1% of total CTC), which in the new structure will have to pay tax of Rs 1.19 lakh (6.6% of total CTC).
This is how your in hand salary will increase-
Your take home salary will decrease in the new structure. But, if you want some alternative to it, then you have a way. You can leave NPS as it is up to you to invest or not to invest in NPS. It is not so with EPF, 12% of your basic salary has to be given in EPF.
How much tax and in hand salary will be made here?
Out of your total CTC, Rs 1.19 lakh will be taxed. Means 6.6% tax of CTC.
Take home salary – Rs 1.15 lakh, 77% of CTC.
Retirement Savings – Rs 2.16 lakh, totaling 12% of CTC.
On leaving NPS in the new structure, your total take home salary will be Rs 1.15 lakh (77% of CTC), which was earlier Rs 1.06 lakh (70.4% of CTC). At the same time, the tax will not remain the same. But, retirement savings will be Rs 2.16 lakh ( 12%), which was earlier Rs 3.06 lakh (17% of CTC).
What is the whole point of salary structure?
There are 3 structures shown above…
If you want, you can retain your take home salary as it is now, but the tax will increase. However, annual retirement savings will increase.
In the existing salary structure, the take home salary is Rs 1.14 lakh, but in the new structure, the take home salary will be reduced to Rs 1.08 lakh. If you leave the option of NPS, then it will increase to Rs 1.15 lakh. In the first structure, the tax to be paid is Rs 1.10 lakh (6.14% of CTC).
In the new structure, it will increase to Rs 1.19 lakh (6.6% of CTC). Even if you leave NPS, there will be no effect on tax and you will have to pay only Rs 1.19 lakh. Retirement savings is Rs 1.96 lakh (10.9% of CTC), which will increase to Rs 3.06 lakh (17% of CTC) in the new structure. On leaving NPS, retirement savings will be Rs 2.16 lakh (12% of CTC) instead of Rs 1.96 lakh. In such a situation, your take home salary will increase.
