CTC remains the same, but the game of benefits has changed! How much tax benefit will be gained from the increase in basic salary under the new labour code? See the full calculation
An increase in basic salary will result in more deductions for an employee's PF and NPS, which may slightly reduce their take-home salary. However, the good news is that these increased contributions can provide significant income deductions, especially under the new tax regime.
New Labour Code: The new labour code, which took effect on November 21, 2025, has introduced significant changes to the salary structure of employees. Companies will now have to ensure that an employee's basic salary is at least 50% of their total CTC. Previously, many employees had a lower basic salary, and the remaining amount was paid in various allowances. But now, companies will have to change this structure. Most importantly, CTC cannot be changed; only its internal structure can be altered.
What has changed in the new rules?
The government has clarified that "wages" will now include basic pay, DA, and retaining allowance. If this percentage is less than 50% of the total salary, wages will need to be increased to cover the shortfall. An increase in wages means that contributions to benefits calculated on the basic salary, such as PF, NPS, and gratuity, will also increase.
Tax Savings
An increase in basic salary will result in higher deductions for an employee's PF and NPS, which may slightly reduce their take-home pay. However, the good news is that these increased contributions can provide significant income deductions, especially under the new tax regime. The new wage structure will increase contributions to PF, NPS, and gratuity, leading to a larger retirement corpus and increased tax savings.
How much tax savings can be made on a CTC of 15 lakh?
Initial calculations suggest that an employee with a CTC of ₹1.5 million can benefit from additional tax savings of approximately ₹75,871 under the new tax regime. Similarly, those with a CTC of ₹2 million and ₹2.5 million can also benefit from higher PF-NPS contributions. The range will depend on the company's structure.
Major Impact on PF, NPS, and Gratuity
Employee PF: Tax exemption under Section 80C in the old regime
Employer PF: Tax-free up to ₹7.5 lakh annually for PF+NPS+superannuation combined
In the old: Up to 10%
This is one of the most tax-efficient components for the employee.
But the tax exemption limit will remain at ₹20 lakh.
Will every employee receive tax savings?
Legal experts say that tax savings will only be realized if companies adjust their salary structure according to the new rules without changing their CTC. Many companies are reviewing their salary structures. Therefore, the savings each employee receives will depend on their company's final structure.
15 lakh CTC - A comparison before and after the implementation of the new labor code
₹15 Lakh CTC – Comparison Before and After New Labour Code
| Component (Salary Breakdown) | Before (INR) | After New Labour Code (INR) |
|---|---|---|
| Basic Salary | 3,60,000 | 6,00,000 |
| Dearness Allowance (DA) | 90,000 | 1,50,000 |
| Total Wages (Basic + DA) | 4,50,000 | 7,50,000 |
| Employer PF Contribution (12% of Wage) | 54,000 | 90,000 |
| Employer NPS Contribution (14% of Wage) | 63,000 | 1,05,000 |
| Gratuity (4.81% of Wage) | 21,645 | 36,075 |
| Special Allowance | 9,11,355 | 5,18,925 |
| Total CTC | 15,00,000 | 15,00,000 |
Tax Calculation
| Calculation Point | Before (INR) | After (INR) |
|---|---|---|
| Less: PF (Employer) | (54,000) | (90,000) |
| Less: Gratuity Provision | (21,645) | (36,075) |
| Gross Taxable Salary | 14,24,355 | 13,73,925 |
| Standard Deduction (₹75,000) | (75,000) | (75,000) |
| Gross Total Income | 13,49,355 | 12,98,925 |
| NPS Deduction (80CCD(2)) | (63,000) | (1,05,000) |
| Net Taxable Income | 12,86,355 | 11,93,925 |
| Total Tax (including Cess) | 75,871 | 0 |
| Annual Tax Savings | — | 75,871 |
Impact on Salary
| Details | Before | After |
|---|---|---|
| Employee PF Contribution (12%) | (54,000) | (90,000) |
| Annual Take-Home Salary | 12,31,484 | 11,78,925 |
| Monthly Net Take-Home | 1,02,624 | 98,244 |
| Monthly Reduction | — | ₹4,380 less |
