Introduction to New Labour Laws in India
The Centre’s new Labour Codes have come into effect, and a big concern for many is how this impacts your salary credits and, in effect, taxation. The primary change to the salary structure is a shift in focus towards long-term and retirement savings for salaried individuals, which means your current in-hand pay may take a hit.
Expert Insights on New Labour Laws
We asked experts about the key changes to your monthly pay cheques and whether this can change which tax regime you choose in the future. Puneet Gupta, Partner, People Advisory Services – Tax at EY India, believes that the new labour codes are broadly aimed at “improving employee welfare by strengthening statutory benefits, standardising working conditions, and enhancing social security coverage”.
Jay Parmar, Co-founder and Partner at tax services firm Aurtus, feels that the changes are positive in the long run. “While they may lead to a marginal reduction in monthly take-home pay, they improve transparency and significantly strengthen retirement and social security benefits such as provident fund, pension, and gratuity. The short-term impact is higher savings, not higher taxes, which ultimately enhances long-term financial security,” he noted.
Biggest Changes Brought by New Labour Laws
Gupta noted that among the most significant changes is the introduction of a common definition of “wages” across the labour codes. “This definition will be used to calculate several statutory benefits such as gratuity, leave encashment, Employees’ State Insurance, and statutory bonus. Under the new framework, wages include most components of salary, subject to specified exclusions and an overall cap of 50% on such exclusions. As a result, statutory payouts—particularly gratuity—may increase for many employees, as these benefits were earlier calculated on basic salary only,” he added.
For more information on tax planning and how to optimize your salary structure, you can visit our website.
Tax Implications of New Labour Laws
Anandan noted that the new Labour Codes do not introduce any fresh income tax deductions under the Income Tax Act, 1961 (or the upcoming Income Tax Act, 2025). This means employees can continue to claim the same deductions and exemptions as before, including Section 80C (investments in PPF, ELSS, life insurance, etc.), Section 80D (health insurance premiums), and House Rent Allowance (HRA) exemption (available only under the old tax regime).
To learn more about Section 80C and other tax deductions, you can read our article on tax deductible investments.
Impact on In-Hand Salary
SureshKumar noted that the Labour Code may not result in any decrease in salaries. “However, the net take-home could dip where employees opt for enhanced retirement contributions and benefits in kind,” he added.
Parmar tried to contextualise the shift, noting that salaries and compensation are not being cut, but restructured. “It only changes how salary components are structured. Any reduction in the monthly in-hand pay is largely due to higher statutory contributions. For employees, this translates into greater retirement savings, higher gratuity payouts, and improved long-term financial security. Simply put, the new labour laws help secure future savings without any reduction in actual earnings,” he added.
For more information on retirement planning and how to optimize your salary structure, you can visit our website.