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How Much Will You Take Home Under the New Labour Codes? Salary Changes for ₹5 Lakh to ₹20 Lakh CTC Explained

The Indian salary landscape is about to change significantly with the implementation of the four new labour codes, effective November 21, 2025. These changes will impact how salaries are structured, particularly the basic salary component, and consequently, the in-hand pay of employees across sectors. Understanding these changes is crucial for both employees and employers to plan finances and restructure pay packages.

Traditionally, many employers have been offering 30% to 40% of an employee’s total cost-to-company (CTC) as basic salary. This trend is set to change, as the new labour codes mandate that an employee’s basic salary must constitute at least 50% of the CTC. This shift has implications not only for salary structure but also for contributions to retirement benefits, such as the Employees’ Provident Fund (EPF), National Pension Scheme (NPS), and gratuity.

What Are the Key Changes in Salary Structure?

The most significant change under the new labour codes is:

  • Minimum 50% Basic Salary: Earlier, companies could set basic salary between 30% and 40% of CTC. Now, every employee must receive at least 50% of CTC as basic salary.

Other important points:

  1. Higher Retirement Contributions: With a higher basic salary, deductions for EPF (24% of basic), NPS (14% of basic), and gratuity (4.81% of basic) will increase.

  2. Possible Reduction in Monthly Take-Home Pay: While your total CTC remains the same, higher deductions may reduce monthly in-hand salary.

  3. No Impact if Already at 50%: If your employer already offers 50% of CTC as basic salary, there will be no change in in-hand pay.

  4. EPF Option: In cases where employers allow a fixed PF deduction (like ₹1,800 per month), your in-hand pay may not reduce, even if the basic salary increases.

Assumptions for Calculating In-Hand Pay

To simplify calculations, we assume:

  • Employee is under the new tax regime.

  • CTC structure includes basic salary only (no dearness allowance or retention allowance).

  • Employer deducts 14% of basic salary for NPS.

  • 24% of basic salary goes towards EPF/EPS.

  • Employer previously offers 40% of CTC as basic salary.

  • Employer sets aside 4.81% of basic salary as gratuity.

With these assumptions, let’s calculate the before and after in-hand pay for different CTC levels.

1. In-Hand Pay for ₹5 Lakh CTC

Before November 21, 2025:

Particulars Amount (₹)
CTC 5,00,000
Basic Salary (40% of CTC) 2,00,000
PF (24% of Basic) 48,000
Gratuity (4.81% of Basic) 9,620
NPS (14% of Basic) 28,000
Annual In-Hand Pay 4,14,380

After November 21, 2025:

Particulars Amount (₹)
CTC 5,00,000
Basic Salary (50% of CTC) 2,50,000
PF (24% of Basic) 60,000
Gratuity (4.81% of Basic) 12,025
NPS (14% of Basic) 35,000
Annual In-Hand Pay 3,92,975

Observation: In-hand pay reduces by ₹21,405 annually due to higher deductions for retirement benefits.

2. In-Hand Pay for ₹8 Lakh CTC

Before November 21, 2025:

Particulars Amount (₹)
CTC 8,00,000
Basic Salary (40% of CTC) 3,20,000
PF (24% of Basic) 76,800
Gratuity (4.81% of Basic) 15,392
NPS (14% of Basic) 44,800
Annual In-Hand Pay 6,63,008

After November 21, 2025:

Particulars Amount (₹)
CTC 8,00,000
Basic Salary (50% of CTC) 4,00,000
PF (24% of Basic) 96,000
Gratuity (4.81% of Basic) 19,240
NPS (14% of Basic) 56,000
Annual In-Hand Pay 6,28,760

Observation: In-hand pay reduces by ₹34,248 annually, reflecting the higher contributions to EPF and NPS.

3. In-Hand Pay for ₹15 Lakh CTC

Before November 21, 2025:

Particulars Amount (₹)
CTC 15,00,000
Basic Salary (40% of CTC) 6,00,000
PF (24% of Basic) 1,44,000
Gratuity (4.81% of Basic) 28,860
NPS (14% of Basic) 84,000
Annual In-Hand Pay 12,43,140

After November 21, 2025:

Particulars Amount (₹)
CTC 15,00,000
Basic Salary (50% of CTC) 7,50,000
PF (24% of Basic) 1,80,000
Gratuity (4.81% of Basic) 36,075
NPS (14% of Basic) 1,05,000
Annual In-Hand Pay 11,78,925

Observation: Higher basic salary increases retirement contributions, reducing in-hand pay by ₹64,215 annually.

4. In-Hand Pay for ₹20 Lakh CTC

Before November 21, 2025:

Particulars Amount (₹)
CTC 20,00,000
Basic Salary (40% of CTC) 8,00,000
PF (24% of Basic) 1,92,000
Gratuity (4.81% of Basic) 38,480
NPS (14% of Basic) 1,12,000
Annual In-Hand Pay 16,57,520

After November 21, 2025:

Particulars Amount (₹)
CTC 20,00,000
Basic Salary (50% of CTC) 10,00,000
PF (24% of Basic) 2,40,000
Gratuity (4.81% of Basic) 48,100
NPS (14% of Basic) 1,40,000
Annual In-Hand Pay 15,71,900

Observation: The in-hand pay reduces by ₹85,620 annually, highlighting the effect of increased retirement contributions at higher CTC levels.

Why In-Hand Pay Reduces

The primary reason for the reduction in in-hand salary is higher retirement contributions:

  1. EPF/EPS Contributions: 24% of the basic salary goes to the Employees’ Provident Fund. A higher basic salary leads to higher monthly deductions.

  2. Gratuity: 4.81% of the basic salary is set aside for gratuity.

  3. NPS Contribution: 14% of basic salary goes into the National Pension Scheme.

Even though your total CTC remains the same, the in-hand pay reduces temporarily because more money is directed towards long-term retirement benefits, which ultimately increases your financial security.

Benefits of Higher Basic Salary

While a higher basic salary may reduce in-hand pay in the short term, it brings several long-term benefits:

  1. Higher Retirement Savings: More contributions to EPF and NPS mean higher corpus at retirement.

  2. Gratuity Benefits: Increased gratuity benefits enhance financial security on leaving the organization.

  3. Tax Savings: Contributions to EPF, NPS, and gratuity are eligible for tax exemptions, reducing taxable income.

  4. Loan Eligibility: Higher basic salary improves eligibility for loans such as home loans and personal loans.

Key Points to Remember

  1. If your employer already offers 50% or more of CTC as basic salary, your in-hand pay will remain unaffected.

  2. Some companies offer a fixed PF deduction option (like ₹1,800/month). If this is applicable, your in-hand salary may not reduce, even if the basic salary increases.

  3. The changes apply to all employers and employees, both in the organised and unorganised sectors.

  4. Employers are expected to restructure salary packages soon to comply with the new labour codes.

FAQs on Salary Changes Under New Labour Codes

Q1. Will my overall salary reduce?
No, your total CTC remains the same. Only in-hand pay may reduce due to higher retirement contributions.

Q2. What if my employer continues to offer 40% of CTC as basic?
Employers must adjust the basic salary to 50% of CTC to comply with the new labour codes. Non-compliance may attract penalties.

Q3. Can I opt out of higher EPF contributions?
No, EPF contribution is mandatory under the new rules if your basic salary exceeds the statutory limit.

Q4. Will this affect my tax savings?
Yes, higher contributions to EPF, NPS, and gratuity reduce taxable income, which can lead to tax savings under both old and new tax regimes.

Q5. When will these changes be effective?
From November 21, 2025, all employers must comply with the minimum 50% basic salary rule.

Final Thoughts

The new labour codes are designed to strengthen employee benefits and ensure better retirement security. While the immediate effect may be a slight reduction in monthly in-hand pay, the long-term advantages of higher EPF, NPS, and gratuity contributions are significant.

For employees with CTC ranging from ₹5 lakh to ₹20 lakh, understanding these changes helps in financial planning, tax management, and future security. Employers, on the other hand, must review and restructure salary packages to ensure compliance with the law.

In the coming months, employees should check with their HR departments to understand how their new salary structure will look and plan their finances accordingly.

Disclaimer: The examples provided are for illustrative purposes only. Actual in-hand pay may vary depending on company policies, EPF options, tax regime, and additional allowances.

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