What is the story about?
India’s new labour codes, which consolidate 29 existing laws into four broad codes, are set to significantly change how salaries, benefits and workplace protections are structured. While the codes aim to simplify compliance for employers and improve social security coverage for employees, the question is, will it inflate the amount that lands in your bank account every month.
Short answer: No, it’s likely to lower the amount - marginally.
The biggest change: how your salary is structured
The most consequential change under the new labour laws is that basic salary must now be at least 50% of your total Cost to Company (CTC).
Earlier, many companies kept basic pay lower, typically around 30–35% of CTC, and made up the rest through allowances such as HRA, special allowance or conveyance. This structure helped keep statutory deductions lower and boosted monthly take-home pay.
Why basic pay matters
Several key components of your compensation are linked directly to basic salary. Provident Fund (PF), for instance, is calculated at 12% of basic pay. Gratuity and leave encashment are also tied to basic wages.
With a lower basic component earlier, PF deductions were smaller, which meant employees took home more cash each month. Under the new rules, as basic pay rises to 50% of CTC, PF contributions automatically increase, gratuity provisioning goes up, and the value of leave encashment improves. The flip side is that your in-hand salary comes down a bit.
The tax angle
There’s another layer to this change. A portion of the allowances that earlier formed part of your salary structure were either tax-free or tax-efficient. As the share of basic pay rises and allowances shrink, your taxable income increases, leading to a slightly higher tax outgo. This adds to the marginal dip in monthly take-home pay.
Is it all bad news?
Not really. While your monthly in-hand salary may reduce marginally, your long-term financial security improves. Higher PF contributions mean a larger retirement corpus. Higher basic pay also translates into a bigger gratuity payout over the long term. In effect, the new labour codes prioritise forced savings and social security over immediate disposable income.
The new labour codes also mandate free or subsidised annual health check-ups for employees above 40 years of age. While this doesn’t show up in your salary slip, it does reduce out-of-pocket healthcare costs and adds a non-monetary benefit to the overall compensation package.
As a result, what may seem like a cut in your monthly in-hand salary, is actually a longe term financial rebalance. You may see a slightly lower take-home salary each month, but in return, you build stronger retirement savings, better long-term benefits and improved health coverage, which is a trade-off that favours financial security over short-term cash flow.
Short answer: No, it’s likely to lower the amount - marginally.
The biggest change: how your salary is structured
The most consequential change under the new labour laws is that basic salary must now be at least 50% of your total Cost to Company (CTC).
Earlier, many companies kept basic pay lower, typically around 30–35% of CTC, and made up the rest through allowances such as HRA, special allowance or conveyance. This structure helped keep statutory deductions lower and boosted monthly take-home pay.
Why basic pay matters
Several key components of your compensation are linked directly to basic salary. Provident Fund (PF), for instance, is calculated at 12% of basic pay. Gratuity and leave encashment are also tied to basic wages.
With a lower basic component earlier, PF deductions were smaller, which meant employees took home more cash each month. Under the new rules, as basic pay rises to 50% of CTC, PF contributions automatically increase, gratuity provisioning goes up, and the value of leave encashment improves. The flip side is that your in-hand salary comes down a bit.
The tax angle
There’s another layer to this change. A portion of the allowances that earlier formed part of your salary structure were either tax-free or tax-efficient. As the share of basic pay rises and allowances shrink, your taxable income increases, leading to a slightly higher tax outgo. This adds to the marginal dip in monthly take-home pay.
Is it all bad news?
Not really. While your monthly in-hand salary may reduce marginally, your long-term financial security improves. Higher PF contributions mean a larger retirement corpus. Higher basic pay also translates into a bigger gratuity payout over the long term. In effect, the new labour codes prioritise forced savings and social security over immediate disposable income.
The new labour codes also mandate free or subsidised annual health check-ups for employees above 40 years of age. While this doesn’t show up in your salary slip, it does reduce out-of-pocket healthcare costs and adds a non-monetary benefit to the overall compensation package.
As a result, what may seem like a cut in your monthly in-hand salary, is actually a longe term financial rebalance. You may see a slightly lower take-home salary each month, but in return, you build stronger retirement savings, better long-term benefits and improved health coverage, which is a trade-off that favours financial security over short-term cash flow.
