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New Labour Code 2025: November 21, 2025, marked a significant change for salaried employees across the country. With the new Labour Code incorporated into existing labour laws, it has now become mandatory for companies to ensure that an employee's 'wages (basic salary, dearness allowance, and retaining allowance) constitute at least 50% of their total 'Cost to Company' (CTC).

In simpler terms, if your salary structure previously had a low basic salary and high allowances, companies will now have to increase your basic salary. However, since the total CTC of existing employees cannot be changed, companies are having to restructure the components of the salary. This will directly impact both your take-home salary and tax savings.

The biggest impact of this new rule is that the increased basic salary will lead to higher contributions from both the employee and the company towards statutory benefits such as PF, NPS, and gratuity. Since these contributions are based on the basic salary, the increase will result in a decrease in your monthly take-home salary.

However, the other side of the coin is that this can significantly reduce your tax liability. According to calculations, if your annual CTC is ₹15 lakh, you can save approximately ₹75,871 in taxes under the new regime. Employees with packages of ₹20 lakh and ₹25 lakh will also see tax savings in the thousands.

According to CA (Dr.) Suresh Surana, “The new wage code will specifically change the salary structure of employees whose packages previously had a higher proportion of allowances and flexible components. While this may reduce immediate monthly income, it will strengthen the retirement corpus and prove more beneficial from a tax perspective.”

What will be the impact on packages of ₹15 lakh, ₹20 lakh, and ₹25 lakh? An interesting picture emerges from the data analysis by Ashish Philip, Executive Partner at Lakshmikumaran & Sridharan Attorneys, and CA Surana. Let's understand how this will impact different salary brackets.

₹15 lakh CTC: With the new rules, the increase in basic salary and PF/NPS contributions will reduce your taxable income. Calculations show that you can save approximately ₹75,871 in taxes annually. However, your monthly take-home salary may decrease by about ₹4,380.

₹20 lakh CTC: In this bracket, the tax savings will be approximately ₹25,634. However, since the amount deducted for PF and NPS will increase, there could be a significant drop of about ₹12,134 in the monthly take-home salary.

₹25 lakh CTC: Here, tax savings are estimated at approximately ₹40,053. Meanwhile, the in-hand salary may decrease by about ₹14,500 per month.
Ankit Jain, Partner at Ved Jain & Associates, explains that a higher basic salary means higher contributions to PF and NPS. This not only saves on taxes but also builds a larger retirement fund in the long run.

Benefits of Retirement Fund and Tax Exemption
Under the new rules, the employer's contribution to NPS is deductible under Section 80CCD(2), which can be up to 14% of the basic salary. Since the basic salary has now increased, the scope for tax exemption will also automatically increase.

Ankit Jain clarifies that the total employer contribution to PF, NPS, and superannuation remains tax-free only up to ₹7.5 lakh annually. Any amount above this will be considered taxable in the employee's hands. There is also good news regarding gratuity. A higher basic salary means higher gratuity at the time of retirement or leaving the job. However, the tax exemption limit for gratuity under Section 10(10) of the Income Tax Act remains at ₹20 lakh.

Overall, while the new Labour Code may reduce your take-home pay, it is also proving to be an effective way to secure your future and reduce your current tax liability. Companies are now restructuring their salary structures accordingly.

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