Salary shakeup: How new wage rules and income tax tweaks will change take-home pay

taxpayers are opting for the new tax regime, which offers few exemptions for allowances. Companies don’t want to keep bearing the administrative burden of giving an allowance that no one uses.

“Most companies are shifting to simpler pay structures, and allowances outside the exclusion list are likely to go,” said Rashmi Pradeep, partner and head southern region at law firm Cyril Amarchand Mangaldas.At the same time, new draft income tax rules have expanded exemptions under the old tax regime, making some allowances more attractive.Here, we look at select components of a salary slip to understand what may change.Basic pay: While the law doesn’t mandate an increase, some companies are seeking to raise it partly to be closer to the 50% wage requirement. RateGain, for instance, is going to bring it up from 40% to 50%, said Sharma.It benefits employees in the old tax regime, because a higher basic pay can increase the amount of tax exemption you can get on HRA, as that's calculated as a percentage of basic pay plus dearness allowance.On the flip side, a higher basic pay could increase the employees’ provident fund contribution, but that’s optional.The law requires companies to make a minimum monthly PF contribution of ₹1,800 for employees earning ₹15,000 or more.

Any contribution above ₹1,800 is purely the company’s choice, and the new law doesn’t change that minimum.In practice, many companies contribute 12% of an employee’s basic pay to PF, so if they raise basic pay, it could increase the PF contribution and, ultimately, the monthly take-home salary.Companies are expected to give employees a choice in this. “If there is a change in basic, companies may give the employees options to contribute to the full basic or just the