Are you waiting to see your salary credit SMS at the end of the month? Have you started calculating house rent, EMI, ration, children’s school fees, etc. in this month’s salary? Then your calculations may change a little from the coming month of April, beware! Because a new rule is being implemented for employees working in private companies.
Yes, the new financial year will start from April 1, and the ‘New Income Tax Act 2025’ and the ‘New Wage Code’ will come into effect. This will bring some big changes to your salary slip. What it means is explained here in simple terms.
Basic Salary Rule
According to the new rule, your ‘Basic Salary’ must be 50 percent of the total salary (Total CTC) paid to you by the companies. For example: If your total salary is Rs. 50,000, then Rs. 25,000 must be basic salary. Until now, companies used to pay less basic salary to save tax and give the remaining amount in the form of allowances like HRA, travel allowance. Now, allowances cannot exceed 50 percent.
Why is the salary I receive less?
Your Provident Fund (PF) and Gratuity will be deducted based on your ‘Basic Salary’. Now, as per the new rules, as your basic salary increases, your PF deduction will also automatically increase. Due to this, the ‘Take Home Salary’ that gets credited to your account at the end of the month will be slightly reduced.
Old rule vs new rule
| Salary Section | Current rule (current) | New rule (from April 1) |
|---|---|---|
| Basic salary (Basic) | It would have been less (20-30%). | Must be 50 percent. |
| Allowances | It would have been higher (70-80%). | Not more than 50 percent |
| PF Cut (PF Cut) | There would have been less cut. | There will be more cuts. |
| Take Home Salary | It would have been more. | It will decrease a little. |
How will the tax calculation be?
For those in the old tax regime, as the basic salary increases, the HRA exemption may decrease and the tax burden may increase. However, for those who opt for the ‘New Tax Regime’, there will be no tax up to Rs 12.75 lakh (including Rs 75,000 standard deduction). So, opting for the new regime will not have any negative impact.
Note: If your current Basic Salary is already 50% of your Total Cost of Living (CTC), there will be no change in your take-home salary as of April 1st. Don’t worry!
Our advice
Before your April salary comes, contact your company’s HR or accounts department to find out what your ‘new salary structure’ will be. Also, the ‘New Tax Regime’ may be a better option than the old tax regime to increase your take-home salary. Before submitting Form 16, consult a Chartered Accountant (CA).
