New Labour Code Reduces Salary! Find out the new figures and see precise calculations for CTCs of ₹10L, ₹15L, and ₹25L.
Due to the new Labour Code's '50% wage rule,' employees may see a reduction in their in-hand salary starting August 31, 2026. For an annual CTC of ₹15 lakh, the take-home salary could drop by approximately ₹7,928. While this affects all salaried individuals, the increased contributions to PF and gratuity will strengthen their retirement funds.
Significant changes are being observed in the salary structures of salaried employees under the new Labour Code regulations. The mandated '50% wage rule' could result in a monthly reduction of ₹5,000 to ₹22,000 in the in-hand salary credited to employees' bank accounts starting August 31, 2026. This rule applies to all employees whose remuneration is based on the CTC (Cost to Company) model.
This change directly impacts employees with annual packages ranging from ₹10 lakh to ₹50 lakh. However, despite the reduction in in-hand salary, there will be no decrease in your total CTC. The deducted amount will be deposited directly into your long-term savings—specifically into the Provident Fund (PF), National Pension System (NPS), and gratuity—thereby building a substantial corpus for retirement.
What is the 50% wage rule and the conditions under Section 2(y)?
The most significant provision under the new Labour Code relates to the definition of 'Wages.' According to Section 2(y) of the Code on Wages, an employee's basic salary and Dearness Allowance (DA) must constitute at least 50% of their total CTC.
| Annual CTC | Net In-Hand Under Old System (Monthly) | Net In-Hand Under New Labour Codes (Monthly) | Monthly Reduction in In-Hand Salary | Main Reason |
|---|---|---|---|---|
| ₹10 lakh | ₹70,667 | ₹65,381 | ₹5,286 | Increase in basic pay and PF deduction |
| ₹15 lakh | ₹1,06,000 | ₹98,072 | ₹7,928 | Higher employee PF contribution due to increased basic pay |
| ₹25 lakh | ₹1,58,047 | ₹1,46,464 | ₹11,583 | Impact of higher PF and NPS contributions |
| ₹50 lakh | ₹2,77,949 | ₹2,55,643 | ₹22,305 | Higher PF deductions and salary restructuring |
Previously, companies used to keep the basic salary at only 30% to 40% of the total package and allocate the remainder to various allowances to minimize the PF burden. Under the new rules, House Rent Allowance (HRA), conveyance, overtime, commission, and the employer's PF/NPS contributions are classified as 'excluded components' (exempted allowances).
According to the law, if the aggregate of these allowances exceeds 50% of the total salary, the amount exceeding this 50% threshold will be reclassified as 'wages,' and PF and gratuity calculations will be based on this revised base amount.
How much will the in-hand salary decrease across different CTC levels?
Raising the basic salary component to 50% impacts the take-home salary of employees across various salary brackets:
Detailed calculation breakdown for CTCs of ₹10 lakh, ₹15 lakh, and ₹25 lakh
The math regarding take-home salary at different CTC levels has changed as follows:
Calculation for an annual CTC of ₹10 lakh:
Salary components: Basic Salary ₹4,00,000 (40%), HRA ₹2,00,000 (20%), Meal Card ₹1,05,600, and Special Allowance ₹1,38,686.
Total Gross Earnings: ₹8,44,286 annually (₹70,357 per month).
Retirement Contributions: Company's PF share and NPS contribution ₹1,55,714 annually.
Monthly In-hand Pay: After deducting the employee's PF share from the monthly gross of ₹70,357, the amount credited to the account will be ₹65,381 (income tax remains zero due to the rebate under the new tax regime). Under the old system, the take-home pay was ₹70,667; this means a reduction of ₹5,286 per month. Breakdown of ₹15 lakh annual CTC:
Salary components: Basic Salary ₹6,00,000 (40%), HRA ₹3,00,000 (20%), Meal Card ₹1,05,600 (7%), Special Allowance ₹2,90,829 (19%).
Total gross earnings: ₹12,96,429 annually (₹1,08,036 per month).
Retirement contributions: Company's PF share ₹1,19,571 (8%) and NPS ₹84,000 (6%).
Monthly in-hand pay: After deducting the employee's PF share of ₹9,964 from the gross salary of ₹1,08,036, the amount credited to the account will be ₹98,072 (tax liability will be zero due to the rebate under the New Tax Regime). Under the old regime, the take-home pay was ₹1,06,000; this means receiving ₹7,928 less per month.
2. Breakdown of ₹25 lakh annual CTC:
Salary components: Basic Salary ₹10,00,000 (40%), HRA ₹5,00,000 (20%), Meal Card ₹1,05,600 (4%), Special Allowance ₹5,55,114 (22%).
Total gross earnings: ₹21,60,714 annually (₹1,80,060 per month).
Retirement contributions: Company PF ₹1,99,286 and NPS ₹1,40,000.
Monthly in-hand pay: After deducting PF (₹16,607) and Income Tax TDS (₹16,989) from the monthly gross of ₹1,80,060, the net in-hand salary will be ₹1,46,464. Previously, this figure was ₹1,58,047, meaning there will be a difference of ₹11,583 per month.
What will be the impact on tax rules and reimbursements?
The Labour Code determines the wage base solely for PF and social security purposes; it has no direct link to income tax exemptions. Tax exemptions continue to be governed by the Income Tax Act.
Key reliefs available to employees under the new tax regime:
Company's NPS contribution: Up to 14% of basic pay and DA remains tax-free.
Company's PF contribution: An aggregate annual contribution of up to ₹7.5 lakh across PF, NPS, and superannuation funds is tax-free.
Retirement gratuity: Gratuity of up to ₹20 lakh is entirely tax-free.
Leave encashment: For non-government employees, leave encashment of up to ₹25 lakh upon retirement is tax-free.
While the new Labour Code's '50% wage rule' does slightly reduce the immediate in-hand salary of salaried individuals, it creates a robust social security net for their future. Before receiving your salary on August 31, 2026, make sure to understand the revised salary slip and PF contribution details from your company's HR department. Regularly check your EPFO passbook and tax slab to ensure proper tax and investment planning.
