Why take-home salary may reduce from April 2021 | Explained

The salary costs borne by companies are also likely to go up under these new rules as the companies will also have to contribute more towards PF and gratuity.

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

Contribution to PF and gratuity are likely to increase from in the new financial year beginning from April 2021. (HT archive)

Here is all you need to know:

> Private companies will have to restructure their wages.

> To restructure according to the rules which say that the allowance component can’t exceed 50 per cent of the total salary, the companies will have to increase the basic salary component, which will make the contributions to provident fund and gratuity rise.

> This will automatically result in a lower take-home salary for employees.

> According to the new wage definition, at least 50 per cent of the gross remuneration of employees should form the basis to calculate PF and gratuity.

> Many private companies prefer to keep the allowances component higher and the basic salary lower. This will not be allowed under the new rules.

The new rules are to provide better social security and retirement benefits to employees. The salary costs borne by companies will also go up under these new rules as the companies will also have to contribute more towards PF and gratuity.