💼 CTC Remains the Same, but Benefits Have Changed: How the New Labour Code Affects Your Salary

Kokila Chokkanathan
With recent updates under the new labour code, many employees may notice that while their Cost to Company (CTC) remains unchanged, the composition of their salary and associated benefits has shifted. One key area affected is the basic salary, which has implications for tax benefits, provident fund (PF), and National Pension Scheme (NPS) contributions.

💡 What Has Changed

· Increase in Basic Salary: Companies are adjusting the basic salary component of your CTC.

· Impact on Deductions: A higher basic salary increases employee contributions to PF and NPS.

· Take-Home Salary: Due to higher mandatory deductions, the net take-home pay may slightly decrease even if the CTC remains the same.

📝 How Tax Benefits Are Affected

1. PF Contributions:

o Employee PF contributions are deducted from basic salary.

o A higher basic means more money goes into your PF, which is tax-exempt under Section 80C.

2. NPS Contributions:

o Increased basic salary may lead to higher NPS contributions, which provide additional tax benefits under Section 80CCD(1B).

3. Taxable Income:

o Since PF and NPS contributions are deducted before tax, increasing basic salary can optimize long-term tax savings, even if immediate take-home pay is slightly reduced.

💰 Sample Calculation (Illustrative)

Assume your CTC is ₹12 lakh/year:

· Previous Basic Salary: ₹4 lakh → PF contribution: ₹48,000/year

· New Basic Salary: ₹5 lakh → PF contribution: ₹60,000/year

· Immediate Effect: Take-home may reduce by ₹12,000/year due to higher PF deduction.

· Long-Term Benefit: Increased retirement savings and tax exemption on PF/NPS contributions.

🌟 Takeaway

The new labour code has changed the salary structure and benefits game. While employees might see a slight reduction in take-home salary due to increased PF/NPS deductions, the long-term financial and tax benefits increase. It encourages employees to save more for retirement while legally optimizing their tax liability.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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