New Wage Code 2022-23: The New Wage Code is expected to go into effect in the next fiscal year, 2022-23. According to media reports, the new pay code would take effect after April 2022. Basic Salary will have to be at least 50% of the net cost to the company under the new standards (CTC). The compensation structure of the private working class is projected to shift dramatically as a result of this.
In the Wage Code Bill of 2019, the definition of 'wage' has been changed. Changes in Provident Fund contribution, gratuity, and other components are now unavoidable as a result of changes in the Basic Salary percentage. The drop in take-home or in-hand pay is the most direct effect. Employer contributions to the Provident Fund, on the other hand, are expected to rise.
Number of Variables & Allowances has Decreased
The basic salary must now be at least 50% of the CTC, according to the new rules. This proportion currently ranges between 30 and 40% of the total salary. The rest is covered by benefits like HRA, phone tariffs, and newspaper subscriptions. As the Basic Salary rises, the allowances would decrease.
For example, if a person earns Rs 1 lakh per month, the Basic Salary used to be Rs 30,000-40,000, with the remainder being allowances. To stay within the 50% restriction, the basic income must now be at least Rs 50,000, with allowances reduced accordingly.
Increase in Provident Fund, decrease in Take-Home Salary
The PF is based on a proportion of your basic wage. With the increase in basic salary, the Provident Fund will increase as well. Employees' futures will be secured, but more PF will be withheld from the total. This could have a detrimental influence on take-home pay.
Changes in the salary slip structure will also have an influence on TDS calculations.
Increase In Taxes
Apart from Basic Salary, Bonus, and a portion of HRA, the allowances are now non-taxable. Taxes will inevitably grow in tandem with the increase in the Basic Salary (the taxable portion). With the new adjustments, the non-taxable portion will be greatly reduced. It will be in the region of 20-25 percent, down from 50 percent or more previously.
Under the new wage rules, the tax on HRA is also expected to increase significantly. Due to the increase in the basic salary, HRA will also rise. It will increase the taxable part of the HRA. This change will however impact the people with high income more. People with low income will not see a significant increase in their taxable income.
