Take-home pay shrinks despite salary hikes, thanks to new labour codes

Richa Gupta (name changed), who works for a multinational company in Gurugram, was looking forward to a promotion and a salary hike in the new financial year.

However, when she received her increment letter from her company, she was deeply disappointed. While the company had indeed given her a handsome increment, her take-home salary, i.e., the salary the company transfers to her bank account, remained unchanged.

Richa is not alone. Amid the increasing burden of inflation, many are unhappy that their take-home salary has remained the same or even gone down, all thanks to the new labour law that came into effect on April 1, 2026.

New labour codes

The four new labour codes implemented by the Modi government have significantly altered the salaries of employees. Now, an employee’s basic salary, including dearness allowance (DA), must be at least 50 per cent of their CTC (cost to company).

Also read: New labour codes: From gratuity after 1 year to equal pay, all you need to know

Previously, many companies allocated a significant portion of employee salaries into various allowances, resulting in a significantly lower basic salary. However, that will no longer be the case.

Allowances such as HRA (housing rent allowance), LTA (leave travel allowance), and special allowances cannot exceed 50 per cent of the total salary. If they exceed this amount, the additional amount will have to be added to the basic salary.

This change has a direct impact on employees’ take-home pay. The increase in basic salary will increase contributions to the provident fund and gratuity, due to which the money coming into the hands of the employees every month will go down.

Math behind the take-home pay cut

Take Richa’s case. Until the last financial year, she received a monthly salary of Rs 196,000, of which Rs 68,700 was her basic pay. Furthermore, she received Rs 127,300 per month in all allowances. Of this, was deposited Rs 16,492 into provident fund, while Rs 3,305 was deducted each month as gratuity.

The company Richa works for has given her an 8 per cent increment for the 2026-27 fiscal year, increasing her monthly salary to Rs 212,000. However, under the new labour code, the 50 per cent CTC rule has reduced her basic salary to Rs 106,000.

Also read: Why are trade unions up in arms against new labour codes?

Under the Provident Fund (PF) provision, which requires a 12 per cent contribution from the employer and employee, the monthly contribution has gone up to Rs 25,400, while Rs 5,100 will be deducted in gratuity. After tax deductions, Richa’s take-home salary has remained unchanged despite the increment.

Speaking to The Federal, Richa said other employees at the company have also faced the same situation, with some even seeing their take-home salaries reduced due to the new rules.

Labour unions raise questions

Ashok Singh, vice-president of the labour union INTUC, questioned the new labour law, saying, “Any policy should be designed to benefit workers. However, for the past 12 years, the Modi government has not held a labour conference, which used to be attended by everyone, from the prime minister to all stakeholders.”

Benefit of 50 pc basic pay

However, there is also an advantage to raising the basic salary to 50 per cent of the total CTC under the new labour code.

Also read: Why new labour codes may dent India’s dream of Viksit Bharat 2047

Provident fund and gratuity contributions have increased, allowing employees to save more in the long term, resulting in a larger retirement corpus.

While the new labour code will have a small immediate impact on employees’ pockets, their future savings will be more secure and robust.

(This article was originally published in The Federal Desh.)