How Will New Labour Codes Affect Your Salary, PF, and TDS?

In an effort to build a productive workforce, ensure fair wages and enhance workers’ welfare, the Government of India has introduced the Four Labour Codes in the Labour Laws. As per the new codes, the definition of wages is now being expanded, affecting the taxable income, monthly TDS and payroll calculations.

The new codes require at least 50% of an employee’s CTC to be treated as “wages”, including the basic pay, dearness allowance and retaining allowance. As the provident fund and gratuity are calculated on the wage base, the deductions will increase for many employees. A larger PF contribution reduces your take-home salary right now, but it boosts your tax-exempt savings for retirement.

The new codes now mandate the employer to pay twice the regular wage if the employee works overtime. With this requirement, working extra hours will now result in higher taxable income and increased TDS. This could result in monthly salary changes for employees who work irregular hours or have peak season workloads.

The new labour codes are likely to increase the taxable income through the increased overtime earnings, and this will bring significant change to the TDS structure through higher PF-linked deductions. In the short term, take-home earnings may drop a little, but a larger portion of earnings will move into tax-exempt retirement savings. This will help employees build a more stable and organised long-term financial base.