The new financial year is just around the corner, and with it come important changes that could affect the salaries of millions of employees across India. From April 1, 2026, both the New Income Tax Act 2025 and the new Labour Code will come into effect. These changes are likely to bring noticeable differences in salary slips, especially in the way basic pay and allowances are structured.
What Will Change in Your Salary Slip?
Starting April 1, many employees may notice a different break-up in their salary slip. The biggest shift will be in the ratio between basic salary and allowances. Companies will have to restructure pay components to comply with the new Labour Code rules. While the overall CTC may remain the same, the distribution of salary components could look very different.
Basic Salary Must Be 50% of CTC
Under the new Labour Code, companies must ensure that an employee’s basic salary is at least 50 percent of the total Cost to Company (CTC). Currently, many companies keep the basic salary low to reduce tax liability and increase allowances such as HRA, travel allowance and special allowance. In some cases, allowances form 70 to 80 percent of the total salary.
This practice will now change. The total allowances cannot exceed 50 percent of the CTC. As a result, employers may need to increase the basic pay component.
Impact on PF, Gratuity and Take-Home Salary
Provident Fund (PF) and gratuity are calculated based on basic salary. If your basic pay increases, your contribution to PF will also rise. This means your retirement savings will grow faster over time.
However, there is a trade-off. A higher PF deduction could slightly reduce your take-home salary. The actual impact will depend on your existing salary structure.
For example, if your CTC is Rs 50,000 and your basic salary is already Rs 25,000 (50 percent), there may be no change in your in-hand salary. But if your basic pay is only Rs 10,000 and the remaining Rs 40,000 is listed as allowances, your company will now have to increase your basic pay. In such cases, monthly take-home salary may reduce slightly.
Tax Implications Under Old and New Regime
An increase in basic salary can also influence tax calculations, especially under the old tax regime. House Rent Allowance (HRA) exemption is linked to basic salary. If the basic component rises, the taxable portion of HRA may increase, reducing overall tax benefits.
Employees earning between Rs 10 lakh and Rs 30 lakh annually and living in metro cities may still benefit from deductions under Section 80C and NPS if they continue with the old regime.
For those choosing the new tax regime, the impact is limited. Income up to Rs 12.75 lakh annually is tax-free, including the Rs 75,000 standard deduction. Since exemptions like HRA are not available under the new regime, changes in basic salary are unlikely to significantly affect tax liability.
What Employees Should Do Now
Employees should review their salary structure and speak with their HR departments if needed. While take-home pay may slightly decrease for some, the long-term benefit of higher retirement savings could balance the impact.
April 1 will not just begin a new financial year it may also bring a noticeable shift in how your salary is calculated and structured.
