New Wage Code: After the implementation of the New Wage Code, the salary will not be reduced in the new structure of your salary. For this you have to adopt a method. This will not reduce the salary, but will get more in hand salary than before.
New Wage code: Implementation of New Wage code may take some time. But, whenever it is implemented then your entire salary structure will change. So far the discussion is that your in-hand salary will be reduced in the new structure. Because, the basic salary will be 50%. This will increase your retirement savings. The huge amount of allowances will now be less. In such a situation, the salary is likely to be less as compared to the existing structure. But, there is a way, by which your salary will not decrease but will increase.
Basic salary will increase, allowance part will decrease
The government prepared 4 new labor codes by adding 29 labor laws. These have been named as New Wage Codes. There is a provision in the Wage Code that in the salary that companies will give to their employees, the share of basic salary will be 50% of the total salary (CTC). Till now companies keep the basic salary part low and the reimbursement-allowance part more. These include allowances like Leave Travel Allowance (LTA), Overtime and Conveyance allowance.
What is the current structure
Suppose your monthly CTC (Cost to Company) is Rs 1.5 lakh i.e. annual package of Rs 18 lakh and you can avail 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.
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
Suppose your monthly CTC (Cost to Company) is Rs 1.5 lakh i.e. annual package of Rs 18 lakh and you can avail 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.
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
| income | Monthly | annually |
| basic salary | Rs 48,000 | Rs 5,76,000 |
| HRA | Rs 24,000 | Rs 2,88,000 |
| special allowance | 37,636 rupees | Rs 4,51,632 |
| PF Contribution | Rs 5,760 | 69,120 rupees |
| NPS Contribution | Rs 4,800 | 57,600 rupees |
| fuel and transport | Rs 16,000 | Rs 1,92,000 |
| Phone | 2,000 rupees | Rs 24,000 |
| newspaper books | 1,500 rupees | Rs 18,000 |
| Bonus (Annual) | 8,000 rupees | Rs 96,000 |
| Gratuity | Rs 2,304 | Rs 27,648 |
| total salary | Rs 1,50,000 | Rs 18,00,000 |
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-
| income | Monthly | annually |
| basic salary | 75,000 rupees | 9,00,000 rupees |
| HRA | 37,500 rupees | Rs 4,50,000 |
| special allowance | , | , |
| PF Contribution | 9,000 rupees | Rs.1,08,000 |
| NPS Contribution | Rs 7,500 | 90,000 rupees |
| fuel and transport | 10,000 rupees | Rs 1,20,000 |
| Phone | 1,000 rupees | 12,000 rupees |
| newspaper books | 1,000 rupees | 12,000 rupees |
| Bonus (Annual) | Rs 5,400 | 64,800 rupees |
| Gratuity | Rs 3,600 | 43,200 rupees |
| total salary | Rs 1,50,000 | Rs 18,00,000 |
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 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, then 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.
Can increase take home salary by leaving NPS
Your take home salary will decrease in the new structure. But, if you want to find some option for this, then you have a way. You can leave the NPS as it is your choice to put or not to put money in it. This is not the case with EPF, in EPF you have to pay 12% of your basic salary. If you have left NPS, then your salary structure can be like this-
| income | Monthly | annually |
| basic salary | 75,000 rupees | 9,00,000 rupees |
| HRA | 37,500 rupees | Rs 4,50,000 |
| special allowance | Rs 2,400 | 28,800 rupees |
| PF Contribution | 9,000 rupees | Rs.1,08,000 |
| NPS Contribution | , | , |
| fuel and transport | Rs 16,000 | Rs 1,92,000 |
| Phone | 2,000 rupees | Rs 24,000 |
| newspaper books | 1,500 rupees | Rs 18,000 |
| Bonus (Annual) | 3,000 rupees | Rs 36,000 |
| Gratuity | Rs 3,600 | 43,200 rupees |
| total salary | Rs 1,50,000 | Rs 18,00,000 |
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 1.15 lakh, 77 percent of CTC.
- Retirement Savings – Rs 2.16 lakh, total 12 per cent of CTC.
On leaving the NPS in the new structure, your total take home salary will be Rs 1.15 (77% of CTC), which was earlier Rs 1.06 lakh (70.4% of CTC. At the same time, the tax will remain the same. But, retirement savings will be Rs 2.16 lakh (12) %), which was earlier Rs 3.06 lakh (17% of CTC).
In which structure take home salary, what is the calculation of tax and savings
We have shown 3 structures above, according to them, if you want, you can keep your take home salary as it is, but you cannot stop the increase in tax. However, your 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, tax is to be paid Rs 1.10 lakh (6.14% of CTC). In the new structure, this will increase to Rs 1.19 lakh (6.6% of CTC). There will be no tax effect even if you leave NPS and you will have to pay only Rs 1.19 lakh.
In the existing structure, the retirement savings of this salary bracket 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.
