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New Wage Code Impact: Employees’ allowances will be cut! Will high-paid people be hit by more tax?

New Wage Code: The government is once again coming into action regarding the new wage code. The government is once again looking at the proposed rules. In this, some concerns have been raised from the side of the industry. New Labor Minister Bhupendra Yadav has started reviewing the rules, whether any changes are needed in it.




New Delhi: New Wage Code: There was a preparation to implement the New Wage Code from April 1 this year, but it was postponed. Some states are not yet ready to implement it. But now it can be implemented in October. When the new Wage Code is implemented, there will be a big change in the salary structure of the employees. But this change will be different for every employee.

What is the new Wage Code?

According to the Wage Code 2019, the basic salary of the employee should be 50% of the total salary or Cost to Company (CTC), not less than this. At present, most companies keep the basic salary of the employees low and the number of allowances remains high. But as soon as the new wage code is implemented, the existing system will change completely. Companies will have to keep the basic salary of the employees 50% or more of the CTC. In such a situation, the contribution of other components such as provident fund and gratuity will also be affected. If the percentage of basic salary is more, then the contribution of PF will also increase and the amount of gratuity will also be deducted more. Because both these components are calculated on the basic salary only.

Take Home Salary Will Decrease!

When the contribution of PF and gratuity will increase, then it will have a direct impact on ‘Take Home Salary’. Employees will get less salary every month, but on the other hand their retirement will be better. Because the amount of PF and gratuity will be more. That is, when the employee retires from the job, he will have more money to spend his old age.

Will companies cut allowances?

Let us tell you that there are many components in the CTC of an employee. Such as basic salary, house rent allowance (HRA), retirement benefits PF and gratuity and some tax friendly allowances like LTC and entertainment allowances. Now when the new wage code will be implemented, companies will have to redesign the entire salary structure. In which it has to be kept in mind that all these allowances included in CTC should not be more than 50 percent, because the remaining 50 percent will be of basic salary only. In such a situation, companies may have to cut some allowances, which will be slightly higher.

Who will benefit, who will lose?

However, the implementation of the new wage code will have an impact on all employees. Because their retirement benefits will increase and their monthly take home salary will be cut. It is to be noted in this that such employees whose salary is less, their take home salary will not be affected much, while those with higher salary will get more shock. Because they also get more allowances than those with less salary. Companies will cut the allowances of high-salaried people, so that they can be covered in the limit of 50%. The PF contribution of high salary people will also be deducted more and gratuity will also be deducted more. Due to which their take home salary will be greatly reduced.




Will you have to pay more tax?

Companies keep the allowances component more than the basic pay component so that the employee can save tax. But now this will not happen. Earlier, where the basic pay was 25-40 percent in the total CTC, now it will not be less than 50 percent. According to tax experts, due to salary restructuring, the tax liability of high-paid employees will increase as their basic pay will be 50% and the avenues to save tax through allowances will be reduced.

On the other hand, low-salary employees will not be hit by tax much or even if they will be negligible, as well as they will get the benefit of retirement benefits, so different. Therefore, it seems that the new wage code will not cause much trouble for the low and middle income class employees, but will affect the high earners.

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