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Take home salary to Change from April 1 onwards, how new Rules will affect you?

Tuesday,23 March 2021 12:21 PM IST

Prasad Nair

March 23, Mumbai

Last month, Finance Minister Nirmala Sitharaman said that the Code of Wages Bill passed by the Parliament in 2019 will be effective from April 1, 2021 onwards. In a paradigm shift in around seven decades, the government will merge the Minimum Wages Act 1948, Payment of Wages Act 1936, and Payment of Bonus Act 1965, which will affect an employee’s take home salary structure significantly.

For employees the new rules will bring some advantages and disadvantages as the contribution to provident fund will increase giving you a good income in the long run (through increased contributions from employee and employer and the compounded interests). However, the primary disadvantage will be that it would reduce the in-hand salary meaning that you would have to tighten your monthly budgets.

All allowances will be capped at 50 per cent while the basic salary will perhaps increase to 50 per cent, for example, if your cost-to-company (CTC) is Rs.60,000 then the allowances together will not be more than Rs.30,000. From April 1 onwards, 12 per cent + 12 per cent of basic, i.e. Rs.3,600 + Rs.3,600 will get deducted as contribution towards provident fund as against the lower contributions where the basic salary is less and allowances are more.

Interestingly, the government has also amended the provisions of the Gratuity Act. Currently employees are entitled to gratuity after five years of continuous work in a company but with the change in rules, employees will be entitled to gratuity even if they have been employed for just one year. Additionally even those working on contract will also be covered in the new rules and can avail gratuity from their employers.

It is to be noted that the Government of India is making substantial changes in labour laws. Sources privy to the development have told that the government has taken these steps keeping in view the need of the time and the new rules is good for both employers as well as employees. Analysts however point that the move will put some pressure on companies as many of them are still recovering from the pandemic. In many companies there will be a review of salary increments, some may offer marginal increments and industries such as exhibitions, aviation, travel and hospitality would not give any increment at all.

Furthermore, companies are waiting for clarity on the protection of rights of migrant workers, social security for gig-workers, and female employees’ participation as announced by Nirmala Sitharaman in the union budget which she presented last month. Companies will have to consider these changes as well when they are implemented.

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