new labor code 2025
New Labor Code 2025: The date of November 21, 2025 became witness to a big change for salaried employees across the country. After the inclusion of the New Labor Code in the existing labor laws, it has now become mandatory for the companies that the employee’s ‘Wages’ i.e. basic salary, dearness allowance and retaining allowance should be at least 50% of the total ‘Cost to Company’ (CTC).
In simple words, if the basic salary in your salary structure was less and the allowances were more, then now the companies will have to increase your basic salary. However, the total CTC of the existing employees cannot be changed, hence the companies have to make changes in the components of the salary itself. This will have a direct impact on both your take-home salary and tax savings.
New mathematics of salary
this new Rule The biggest impact of this is that by increasing the basic salary, the contribution of both the employee and the company in statutory benefits like PF, NPS and gratuity will increase. Since these contributions are based on basic salary, their increase will result in a decline in your take-home salary.
But, the other side of the coin is that it can significantly reduce your tax liability. According to calculations, if your annual CTC is Rs 15 lakh, then under the new regime you can save tax up to Rs 75,871. At the same time, employees with packages of Rs 20 lakh and Rs 25 lakh will also be able to save thousands in tax.
According to CA (Dr) Suresh Surana, “The new wage code will change the salary structure especially for those employees, whose package till now had a higher share of allowances and flexible components. Even though it may reduce the immediate monthly income, it will strengthen the retirement corpus and prove to be more beneficial from tax point of view.”
What will be the impact on packages of Rs 15, 20 and 25 lakh?
Data analysis by Ashish Philip, executive partner, Lakshmikumaran & Sreedharan Attorneys, and CA Surana, reveals an interesting picture. Let us understand what effect this will have on different salary brackets.
- Rs 15 lakh CTC: After the new rules, your taxable income will reduce due to increase in basic salary and PF/NPS contribution. Calculations show that you will be able to save approximately Rs 75,871 in tax annually. However, your monthly take-home salary may reduce by around Rs 4,380.
- Rs 20 lakh CTC: Tax saving in this bracket will be approximately Rs 25,634. But, since the amount deducted in PF and NPS will increase, there may be a huge decline of about Rs 12,134 in the monthly take-home salary.
- Rs 25 lakh CTC: Here the estimated saving in tax is around Rs 40,053. At the same time, the in-hand salary may decrease by about Rs 14,500 per month.
Ankit Jain, partner of Ved Jain & Associates, says that higher basic salary means more investment in PF and NPS. This not only saves tax but also creates a large retirement fund in the long run.
Will get benefit of retirement fund and tax exemption
Under the new rules, the contribution made by the employer to NPS is deductible under section 80CCD(2), which can be up to 14% of the basic salary. Since now the basic salary has increased, the scope of tax exemption will also automatically increase.
Ankit Jain clarifies that the total contribution of the employer in PF, NPS and superannuation remains tax-free only up to Rs 7.5 lakh annually. The amount above this will be considered taxable in the hands of the employee. At the same time, there is good news for gratuity also. Higher basic salary means higher gratuity at the time of retirement or leaving the job. However, the limit of tax exemption on gratuity under Section 10(10) of the Income Tax Act is still only Rs 20 lakh.
Overall, the new Labor Code may be draining cash from your pockets, but it is also proving to be an effective way of securing your future and reducing current tax liability. Companies are now reorganizing the salary structure accordingly.
Also read- New Labor Code: New rule will be implemented from April 1, employees will get these special facilities