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Salary in Hand Might Reduce from 1st April 2021

SALARY IN HAND MAY REDUCE

All the corporate employees manage their monthly expenses from the net salary they receive from the company after all types of deductions. But it is a matter of concern when your salary in hand might reduce from 1st April 2020. As per the new rules from the government, the companies can only give 50% of CTC as the net take-home salary. But don’t worry, as per the new rules the remaining 50% of your CTC will be a part of your EPF and Gratuity. Your overall CTC will remain the same but the proportion of your net take-home salary will be reduced as per the new wages rule introduced by the government.

New Salary Rules for Employees

  • The private companies will restructure the salary of their employees.
  • The Allowance component cannot exceed 50 per cent of the total salary.
  • Companies have to increase the basic salary components.
  • The remaining 50% of the total salary will be contributed to Gratuity and Provident Funds.
  • There are many companies who keep the allowance components higher and the basic salary lower so it will be not allowed as per this rule.
  • This Rule will be implemented from the 1st of April 2021.

Benefits of this Rule

  • The contribution to the gratuity will increase.
  • All the contributions made to the EPF account will also increase.
  • You will get a high amount of money at the time of retirement as gratuity.
  • The cost to the company will also go up because they will have to contribute more towards Gratuity and Provident Fund.
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How Does this Rule Work

Total Compensation = Gross Salary + EPF + Gratuity

Net Salary or Take Home Salary = Gross Salary – All Taxes

If your CTC is ₹3 Lacs per Annum then you can see how your net take-home salary will be affected:-

Before the New Rule

Before this rule, the companies were free to decide the proportion of the salary and the contribution towards gratuity and EPF. So, if we take 30% as the contribution and 70% as the salary then you are entitled to the following remuneration:-

  • Salary- 70% of 300000 = ₹210000
  • Gratuity and EPF- 30% of 300000 = ₹90000

After the New Rule

As per the new rules, the gross salary must be 50% of the total pay and the remaining 50% will be contributed to Gratuity and PF. So, your net take-home salary might reduce and you will receive the following remuneration from the company:-

  • Salary- 50% of 300000 = ₹150000
  • Gratuity and EPF- 50% of 300000 = ₹150000

Conclusion

As a result, your salary in hand might reduce from 1st April 2021. This rule will add a corpus to your retirement benefits as the proportion of contribution will increase towards PF and gratuity. But on the other hand, you will receive less salary because that deficit will become a part of your retirement benefit that is PF and Gratuity.

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