What’s happening?
New Wage Code 2020 or New Wage Roles 2021 will be bringing in some changes how the salary is structured for most of the people. This has the potential to impact 100% of the salaried class population and will have an impact on their monthly take-home salaries.
The govt has made some tweaks via a Gazette notification around what the structure of compensation should look like and how much of your compensation needs to be considered as your Fixed pay,
Excerpt of the same can be seen below and the full document can be accessed by clicking on this link.
How may these changes have an impact on you is what we will try to understand via this post by taking few examples.
How your Take Home Salary may get impacted?
- Basic pay (in government jobs, basic pay plus dearness allowance) will have to be 50% or more of total pay from April
- Will lead to decrease in Reimbursable amount
- Will lead to increase in Retiral benefits (PF, NPS)
- Will lead to decrease in Take Home Salary
- Increased Gratuity Benefit
- If you take more reimbursements, your overall salary will most likely get impacted.
YOUTUBE Review
Understanding with EXAMPLES
Case 1 – CTC – 10 Lakh
Rent – 2 Lakh / Year
Telephone – 30,000/Year
LTA – 50,000/Year
Meal – 26400/Year
80 C Investments – 1,00,000/Year
80 CCD(1B) Investment – 50,000/Year
For a person with a CTC of 10 Lakh and with above reimbursements, the changes expected are following –
1. Take home monthly Salary may come down by approx. Rs.3000 (yearly Rs.36,000)
2. Retiral Benefits may go up by Rs.3000.
Over all income impact is NIL but as we can see that per month in hand salary will decrease. Basically, today’s loss will be future’s gain.
Case 2 – CTC – 15 Lakh
Rent – 3 Lakh / Year
Telephone – 30,000/Year
LTA – 50,000/Year
Meal – 26400/Year
80 C Investments – 1,00,000/Year
80 CCD(1B) Investment – 50,000/Year
For a person with a CTC of 15 Lakh and with above reimbursements, the changes expected are following –
1. Take home monthly Salary may come down by approx. Rs.4000 (yearly Rs.48,000)
2. Retiral Benefits may go up by Rs.4000.
Over all income impact is POSITIVE. While the in hand salary will decrease in current scenario, there is an overall benefit (Rs.3,600/year) that the person will get owing to minor decrease in tax
Case 3 – CTC – 20 Lakh
Rent – 4 Lakh / Year
Telephone – 30,000/Year
LTA – 50,000/Year
Meal – 26400/Year
80 C Investments – 1,00,000/Year
80 CCD(1B) Investment – 50,000/Year
For a person with a CTC of 20 Lakh and with above reimbursements, the changes expected are following –
1. Take home monthly Salary may come down by approx. Rs.5000 (yearly Rs.60,000)
2. Retiral Benefits may go up by Rs.5000.
Over all income impact is POSITIVE. While the in hand salary will decrease in current scenario, there is an overall benefit (Rs.8,400/year) that the person will get owing to minor decrease in tax
Case 4 – CTC – 20 Lakh (with Increased Reimbursements)
Rent – 4 Lakh / Year
Telephone – 30,000/Year
LTA – 50,000/Year
Meal – 26400/Year
80 C Investments – 1,00,000/Year
80 CCD(1B) Investment – 50,000/Year
*Car Lease – 1,20,000/Year
*Fuel – 1,00,000/Year
*Driver – 1,20,000/year
For a person with a CTC of 20 Lakh and with increases reimbursements, the changes expected could be significant and as per following –
1. Take home monthly Salary may come down by approx. Rs.6500 (yearly Rs.78,000) – Including Reimbursements
2. Retiral Benefits may go up by Rs.5600.
Over all income impact is NEGATIVE. While the in hand salary will decrease in current scenario, there is also an overall impact (Rs.21,300/year) for the person owing to the increase in tax.
SUMMARY
To Sum it up, if you are in a higher salary band and are heavily utilizing the Reimbursement portion of salary, the change in structure is bound to impact you from April 2021. While this may (or may not) bring cheer for people in the lower tax brackets, it will have a large impact on the people who are already paying higher taxes. Overall, another move to make people pay more rather than ways to increase tax net.