Understanding the Impact of India's New Labour Codes on Salaries
New Labour Codes: How 50% Basic Pay Rule May Impact Your In-Hand Salary
News 18
Image: News 18
India's new labour codes, effective from November 21, 2025, mandate that basic pay must constitute at least 50% of total remuneration. This shift aims to enhance social security benefits but may lead to reduced in-hand salaries for employees due to higher statutory deductions and changes in allowances.
- 01The 50% basic pay rule requires that basic pay, dearness allowance, and retaining allowance make up at least half of total salary.
- 02Employers are restructuring salaries, increasing basic pay while reducing allowances to comply with the new regulations.
- 03Higher basic pay will lead to increased contributions to provident funds and gratuity, affecting take-home salaries.
- 04The impact on tax liability will depend on the chosen tax regime and the new salary structure.
- 05The changes aim to improve social security benefits rather than directly alter tax burdens.
Advertisement
In-Article Ad
India's new labour codes, which came into effect on November 21, 2025, introduce significant changes to salary structures for millions of employees. Central to these changes is the 50% basic pay rule, which mandates that basic pay, dearness allowance, and retaining allowance must comprise at least 50% of total remuneration. This reform aims to enhance social security benefits but may impact employees' monthly in-hand salaries. Historically, many companies maintained basic pay at 30-40% of total cost to company (CTC) to optimize tax efficiency. With the new rule, employers are expected to increase the basic pay component while reducing allowances, leading to higher statutory deductions for provident funds and gratuity. While this may reduce take-home pay, it also strengthens long-term retirement savings and social security coverage. The tax implications of these changes will vary based on whether employees opt for the old or new tax regime, with the latter likely resulting in more noticeable reductions in in-hand salary due to fewer exemptions. As companies adjust their salary structures, employees should prepare for these changes in their compensation.
Advertisement
In-Article Ad
Employees may see a reduction in their monthly take-home salary due to increased statutory deductions, but they will benefit from enhanced social security contributions.
Advertisement
In-Article Ad
Reader Poll
How do you feel about the new labour codes and their impact on salaries?
Connecting to poll...
Read the original article
Visit the source for the complete story.
