Your Take-Home Salary May Reduce From April 2021. Know-How It Will Impact You

The take-home salary of the most private firm employees will likely reduce from April 2021 because of the new salary rule passed by the parliament in the last year.

Because of the new wage rule companies have to change the salary structure of the employees. According to the new salary rule, the contribution to PF (Provident Fund) and Gratuity are to be increased.

According to the new salary rule, under the Code of Wages passed by Parliament last year 2020, the take-home pay of most private firm employees is likely to come down as contribution to provident fund (PF) and gratuity are to be raised. The new salary rules will come into force from April 1, 2021.

The new payment rule clearly states that the allowance can not be more than the total salary of the employee, meaning that the basic pay of the employee has to be 50 percent minimum or more than the total pay.

• As per the new salary rules the allowance cannot exceed 50 percent of the total salary of the employee. Meaning the basic salary will be a minimum of 50 percent or more than that. In compliance with the rule, the employer has to increase the basic pay component salaries of the employee, resulting in rising of the provident fund and gratuity of the employee.
• The retirement corpus of the employee will rise as an increase in PF and gratuity.
• Most private companies offer higher allowance and lower non-allowance part less than the 50 percent of the allowance portion. This will change as per the new rule.
• The Code will include four labor laws. “Minimum Wages Act”, “Payment of Wages Act”, “Payment of Bonus Act”, and “Equal Remuneration Act”. After its performance, all these four Acts would be revoked.
• The Code on Wages Bill, 2019 tries to improve and strengthen laws relating to salaries, bonus, and matters connected therewith. The code was passed in Rajya Sabha on August 2, 2019. The bill passed by Lok Sabha date July 30, 2019.

Commonly many private companies keep the non-allowance part less than 50% of the salary of the employee hence they have to contribute less to EPF and Gratuity and reduce their burden.

But once the new pay code is implemented, companies need to increase the basic salary of the employee and this will reduce employee’s take-home salary, but it will increase the EPF and gratuity contribution. Also, this will reduce the tax liability of the employee, as the private company will add EPF contribution to the employee’s CTC.

As the take-home salary of the employee will be reduced nearby 10 percent it will definitely affect the household budget. These new pay rules may give benefits after your retirement but they will reduce the take-home salary also, and this will affect most to the loans, SIP, EMIs, etc. Usually, more than 40 percent salaried goes into paying EMIs, including home loans. It can be more difficult to adjust or manage if take-home salary reduce.

As per the new rule, it will be going to affect your expenses also. As your take-home salary reduces after the implementation of the law, there will be difficult to manage the expenses in minimum take-home salary. All you have to do the new planning and manage your expenses likewise.

In such situations, your SIP, PPF, and other savings reduce your daily expenses. Finally, you have to take the decision by consulting with your financial advisor. As you have to control your expenses also.