New labours law: Why your in-hand salary may fall even if CTC stays the same? Explained

India’s revised national wage framework will not alter how much employers spend on staff, but it will change how employees receive their pay. With the new rules making it mandatory for basic pay to form at least half of total wages, a greater portion of salaries will now go into statutory deductions such as Provident Fund (PF).

As a result, the monthly in-hand salary will decrease for many private sector employees despite the CTC remaining unchanged.

Basic Pay Must Be 50%

For years, companies reduced salary deductions by keeping basic pay low and increasing allowances. This resulted in lower PF contributions and higher take-home pay for employees. The revised wage framework closes that option.

Under the new rule, basic salary, dearness allowance and retaining allowance combined must make up at least 50% of total wages. Since PF deductions are calculated on basic pay, a mandatory increase in basic salary automatically increases PF deductions.

As more money is redirected into PF, employees receive a smaller monthly salary, even though the CTC remains the same.

How Take-Home Salary Drops for a Rs 6 Lakh CTC

Consider an employee earning a Rs 6 lakh annual CTC. Earlier, an employer could keep basic pay at Rs 1.8 lakh and distribute the remaining amount as allowances. PF deductions were then calculated on the Rs 1.8 lakh figure, keeping monthly deductions low.

With the new rule, basic pay must be revised to Rs 3 lakh, because it cannot be less than half of the total wages. PF deductions now apply to the higher basic sum. This raises the monthly PF deduction from Rs 1,800 to Rs 3,000. The employee ends up taking home Rs 1,200 less each month, even though the overall CTC remains Rs 6 lakh.

Impact on Mid-Level Salaries: Rs 12 Lakh Example

A similar effect is visible with a Rs 12 lakh CTC. Under the older structure, basic salary could be kept at Rs 4.2 lakh, resulting in PF deductions of Rs 4,200 per month. Under the revised rules, basic pay must increase to Rs 6 lakh. PF deductions then jump to Rs 6,000 per month.

Despite no change in total CTC, the employee takes home Rs 1,800 less every month, while the PF contribution grows simultaneously.

Greater Loss in Take-Home for Higher Salaries

The drop becomes sharper with higher CTC packages. A professional with an Rs 18 lakh annual CTC will see PF deductions rise drastically because a larger basic salary attracts a correspondingly larger PF contribution. In such cases, the decrease in monthly income may be more than Rs 3,000, leading to a yearly loss of over Rs 40,000 in liquid income.

Although this amount moves to long-term savings, the drop in immediate earnings will be clearly felt, especially among salaried households dependent on monthly liquidity.

Who Will Not See a Reduction in In-Hand Salary

Not everyone will experience a fall in take-home pay. Employees whose basic salary is already at or above the 50% threshold will not see significant changes.

Those outside PF coverage, including certain small establishments and exempt employees, will also remain unaffected. However, the impact is expected to be widespread among IT professionals, corporate staff, media employees, and factory workers who fall under PF regulations.

Lower Monthly Salary, Larger Retirement Corpus

Although the revised wage structure may disrupt household budgets in the short term, it provides stronger financial security over time. With a larger share of income locked into PF and linked savings, retirement benefits grow faster.

PF earns assured interest, often above 8% annually, and the increased basic salary also boosts gratuity entitlement.

In essence, workers will be compelled to save more for the long term, even if it means sacrificing present income. The reform pushes employees towards higher retirement savings, shifting the balance between immediate spending and future financial protection.