A major change is coming to salary structures across India with the implementation of the New Labour Code. The revised rules mandate that basic salary must constitute at least 50% of the total CTC, which will significantly affect employees’ take-home earnings. While the in-hand salary may reduce slightly for many, the contribution to Provident Fund (PF) and gratuity will increase, resulting in stronger long-term retirement benefits.

Under the new structure, allowances will be limited to a maximum of 50% of CTC, shifting a larger amount into the basic salary component. This means that companies will calculate PF and gratuity on a higher base, increasing employee social security contributions.

Why Take-Home Salary Will Reduce

Increasing the basic salary automatically raises PF contribution (12% of basic salary) and gratuity (4.81% of basic). Since both of these are deducted from CTC, the immediate effect is lower monthly in-hand salary. However, the benefit is substantial in the long run due to compound growth in PF, NPS, and gratuity funds.

Experts believe that this change will help employees build a stronger corpus for retirement, ensuring better financial security in later years. The trade-off is clear—lower short-term liquidity but greater long-term wealth creation.

Impact of New Labour Code on 7, 10 and 15 Lakh CTC – Detailed Salary Comparison

The following sample calculations demonstrate how salaries may change when basic salary increases from 40% to 50% of CTC.

For ₹7 Lakh CTC

Estimated reduction in annual take-home: ₹11,767

For ₹10 Lakh CTC

Estimated reduction in annual take-home: ₹28,810

For ₹15 Lakh CTC

Estimated reduction in annual take-home: ₹13,414

Disclaimer: These figures are indicative and can vary based on allowances, taxation, employer contribution policies, and additional benefits included in the CTC.

Key Advantages of the New Labour Code

• Slight reduction in monthly take-home due to higher PF and gratuity deductions.

• Massive retirement savings through compounding in PF, NPS, and gratuity.

• Improved financial stability and social security for employees.

• Ensures employees build a larger retirement corpus, potentially reaching crores over time.

Conclusion

The New Labour Code may initially feel challenging for salaried professionals who rely heavily on monthly liquidity, but the long-term financial outcome is highly beneficial. Employees will enjoy stronger retirement security and significant wealth accumulation through systematic contributions.

As financial experts put it:
“Short-term pain, long-term gain – lower take-home today, higher financial strength tomorrow.”