After April 2022, the New Wage Code is expected to take effect. Under the new rules, the basic salary must be at least 50% of the net cost to the company (CTC). The meaning or definition of ‘wage’ has been altered by the Wage Code Bill of 2019. As a result of changes in the Basic Salary percentage, adjustments in Provident Fund contribution, gratuity, and other components are now unavoidable. The most direct effect is a decrease in take-home or in-hand salary. On the other hand, employer contributions to the Provident Fund are likely to increase.
According to the new standards, the basic salary must now be at least 50% of the CTC. This percentage currently fluctuates between 30 and 40% of total pay. Benefits such as HRA, phone tariffs, and newspaper subscriptions cover the rest. Allowances would reduce as the Basic Salary increased.
The allowances are no longer taxable, except for Basic Salary, Bonus, and a portion of HRA. Taxes will rise in a pattern with an increase in the Basic Salary (the taxable portion). The non-taxable part will be reduced considerably as a result of the new changes.
The tax on HRA is also projected to rise significantly under the new salary standards. HRA will increase as a result of the increase in the basic salary. It will raise the HRA’s taxable portion. This move will, however, have a greater impact on those with a high income. The taxable income of low-income people will not grow significantly.