New Wage Code: When the Wage Code Bill 2019 is implemented, the basic wage will not be less than 50% of the total salary. It is expected that the new wage code may be implemented next year.
After the second wave of Corona epidemic, many companies have increased the salary of their employees. But your happiness may be eclipsed. If you feel that after increasing the salary, your take home salary has increased, then there is news of great work for you. After the implementation of the new Wage Code, along with reducing your take home salary, the tax burden on you may also increase.
allowances will have to be cut
There are three to four components in the cost-to-company (CTC) of an employee. Basic salary, House Rent Allowance (HRA), retirement benefits like PF, gratuity and pension and tax saving allowances like LTA and entertainment allowance. Now in the new wage code, it has been decided that allowances cannot exceed 50% of the total salary at any cost. In such a situation, if the salary of an employee is Rs 50,000 per month. So his basic salary should be Rs 25,000 and his allowances should come in the remaining Rs 25,000.
That is, till now the companies which used to keep the basic salary at 25-30 percent, and the remaining part was from the allowance, they can no longer keep the basic salary less than 50 percent. In such a situation, companies will also have to cut many allowances to implement the rules of the new wage code.
Will collect more money for retirement
Provident fund and gratuity are directly linked to the basic salary of the employee. Obviously, with the increase in the basic salary, the contribution of these two components will also increase. That is, the retirement fund of the employee will increase but the salary in his hands will decrease, because now a large part will start going to PF and gratuity. Let us understand this with an example.
Suppose the salary of an employee is Rs 1 lakh. His basic salary is Rs 30,000. Both the employee and the company contribute 12-12 percent to the PF. That is, both contribute Rs 3600. So the employee’s in hand salary was Rs 92800 monthly. But when the basic salary will increase to Rs 50,000, then the in hand salary will be Rs 88000, that is, the entire Rs 4800 will be reduced every month. Similarly, the amount of gratuity will increase.
Tax will also have an effect
After the implementation of the new wage code, the salary structure of the employees will change. This will increase the tax liability of those employees whose salary is more. Because all their allowances will have to be included within 50 percent of CTC. Whereas those with lower income will have less tax hit. Their contribution towards PF will increase, they will get tax deduction under section 80C on contribution up to 1.5 lakh, which will reduce their tax liability.
