Employees may face a major setback in the year 2022-23 (FY 2022-23). Actually the New Wage Code is expected to be implemented in the financial year 2022-23.
According to media reports, the new pay code will be effective after April 2022. Under the new norms (CTC), the basic salary should be at least 50% of the basic cost to the company.
Along with this, private employees can get a big setback. There will be a reduction in their take home salary. Along with this, there will be an increase in PF and graduation. There will also be a huge increase in the basic salary. As a result, there is an anticipated change in the allowance of private employees.
The definition of ‘Salary’ has been changed in the Wage Code Bill 2019. Changes in Provident Fund Contribution (PF), Gratuity and other Allowances are now mandatory as a result of change in Basic Pay Percentage. The decline in take-home or in-hand pay would be the most direct impact. On the other hand the employer’s contribution to the provident fund is expected to increase.
Increase in PF, decrease in Take Home Salary
PF is based on the ratio of your basic pay. With the increase in the basic salary, the provident fund will also increase. The future of the employees will be secure but more PF will be stopped than the total salary. This can have a detrimental effect on take-home pay.
Increase in taxes
Basic pay, bonus and allowances other than a part of HRA are now non-taxable. Taxes will inevitably increase with increase in basic pay. The non-taxable portion will be greatly reduced with the new adjustment. The non-taxable portion will be in the range of 20-25 per cent, which was 50 per cent or more earlier.
The tax on HRA is also expected to increase substantially under the new wage rules. With the increase in basic salary, HRA will also increase. This will increase the taxable portion of HRA. However, this change may affect people with higher incomes more.
Number of Variables and Perks reduced
According to the new rules, now the basic pay should be at least 50% of the CTC. This ratio currently ranges between 30 to 40% of the total salary. Rest will be allowances payable from HRA, DA, CEA benefits. As the basic pay increases, the allowances will decrease.
For example if a person earns Rs 1 lakh per month, the basic salary used to be Rs 30,000-40,000 with the remaining allowances. Whereas under the new rule, the basic income should now be at least Rs 50,000 within the 50% limit, allowances will be reduced accordingly.))
