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Labour Codes Reshape Your Paycheck
16 May
Summary
- Salary hikes may not boost take-home pay due to new labour codes.
- Tax-exempt allowances have increased, impacting tax outgo.
- Old vs. new tax regimes depend on deductions and paperwork.
Companies began aligning salary structures with new labour codes and updated income tax rules during the recent appraisal season. While some firms implemented changes effective April 1, broader adoption is still gradual across India Inc.
Many organizations are now integrating increased tax-exempt allowances and flexible benefits to optimize employee tax outgo. The choice between the old and new tax regimes depends on factors like HRA claims, available deductions, and preparedness for tax documentation.
The revised wage definition under the labour codes requires at least 50% of total remuneration to be treated as wages for social security obligations. This can result in a reduced increase in take-home salary despite an overall hike, as a portion covers additional statutory contributions.
Tax-exempt allowances such as children's education and hostel expenses have seen significant increases under the old tax regime. Meal coupon exemptions are available under both regimes. Employees in cities like Bengaluru, Pune, Hyderabad, and Ahmedabad now have a higher HRA exemption limit of up to 50% of their basic salary.
The decision to choose between the old and new tax regimes now depends on individual circumstances, particularly HRA claims and the number of deductions available. While the new regime offers simplicity, the old regime may be more beneficial for those with multiple deductions and HRA claims.
