The modi government is known for making brave decisions. This time, it has made some vital changes related to the salaried class.
The central government has finalized 4 new labour laws. These laws will come come into force from April 1, 2021. The laws are occupational safety, Health and work conditions code, Industrial relations code, The code on social security, The code on wages.
Out of these 4 laws, one that is gaining the maximum attention of the salaried class is The code on wages. The main impact of this new code will be on the take home salary. So how is this new code going to affect the take home salary? Well, let's take a look.
The CTC or the cost to company is what an employee is offered in return of his services. The CTC is comprised of several allowances, incentives etc. One key component of the CTC is the basic salary.
Now, according to the new law, the basic salary that you get cannot be less than 50 percent. Until now, it was the employer who decided the basic salary of the employee. But now, according to the new law, the basic salary will not be less than 50 percent.
You might be thinking that how will my take home salary reduce due to the new code? Well let me explain it.
Now, the provident fund or PF as we know it is deduced from the basic salary. It is deducted as 12 percent of the basic pay. The basic pay we get is on an average 30 percent of the CTC. But according the new code, it will be 50 percent of the CTC. The PF that is deducted on 30 percent basic salary will be now deducted according to 50 percent. So you will end up getting more deduction in your take home salary as the PF deduction will be more.
Let's study an example. For instance, let's say that your ctc is 1,00,000 INR per annum and let's say that your basic salary is 30 percent of your CTC. So, your basic salary will be 30 percent of 1,00,000 rupees, i.e 30,000 INR per year. So per month, 2500 rupees would be your basic salary.
Now the PF that will be deducted will be 12 percent of your monthly basic salary, i.e 12 percent of 2500 INR which is 300 rupees.
But according to the new code, the basic salary has to be 50 percent minimum. So the 30000 rupees basic salary will now be 50000 rupees per year. Also, monthly basic pay will be 4166 INR approx instead of 2500 rupees. So, the PF will be 12 percent of this amount, that is 12% of 4166 rupees which equals to 500 rupees approx. So instead of 300 rupees, 500 rupees will be deducted for PF. So, per month, you will see a 200 rupee deduction in your take home salary.
There are 2 sides of these new code. The salaried will now get a reduced amount of take home salary which might trouble quite a large number of people.
Until now, some employees preferred a reduced percentage of basic salary and an increase amount of allowances. These hack helped them to save more money as the tax deduction would be less and also the take home salary would increase in the form of allowances.
But, now the basic salary will be 50 percent minimum. So employees will end up saving more in PF and having lesser take home salary.
But looking on the brighter side, it will help the salaried class to save more in the form of PF for the future.